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.