Vickers sidelined in Bank resolution regime plans

THE BANK of England is working on plans to carve up failing banks into “good” and “bad” banks, but has so far shown little interest in the concept of a ringfence dividing wholesale and retail activities, as proposed by Sir John Vickers’ Independent Commission on Banking (ICB).

The Bank’s quarterly report provides an update on its plans for how to wind up teetering lenders without resorting to taxpayer bail-outs, but there is no suggestion that a firewall between high street and investment banks would be useful or necessary.

Last week, the ICB unveiled a dramatic plan for restructuring lenders to “protect” retail banking, which George Osborne has vowed to implement.

The ICB argued: “In general, resolution requires the separation of different banking functions. Without ex ante separability, which ring-fencing would provide, it is doubtful that this could be done ex post.”

However, the Bank’s report lays out a plan to divide up banks’ assets on the basis of their solvency, rather than their business line. It proposes placing retail deposits in the “good” bank without any suggestion that a ring-fence would ease the process.

The update also outlines how current contract law makes it necessary to compensate bondholders for extra losses that would not occur during a normal insolvency procedure.