The Treasury has today published proposals to strengthen the UK's ability to deal with any future failure of an investment bank. The proposals will enhance the UK's reputation as one of the world's leading centres for conducting investment business.
These proposals are part of the Government's broader work on reducing the impact of failing firms. They build on the steps the Government took in the Banking Act earlier this year to resolve failing retail banks.
Financial Services Secretary Paul Myners said:
"The collapse of Lehman Brothers last October had a major impact on financial centres across the world. It is important that the Government acts to ensure that any future failure of an investment bank does not cause the same degree of damage to markets or investors.
"Moving quickly to address these issues will be a significant advantage for the City and for the wider UK financial sector. Today's proposals are about enhancing the UK's reputation as the world's premier destination for investment banking services."
This report builds on ideas outlined by Government in a discussion paper in May this year.
The Government has worked extensively with industry experts, the Bank of England and the Financial Services Authority (FSA) to refine its ideas for balanced and proportionate policy response to any future failure of a major investment bank.
The latest report considers a package of market, regulatory and legislative policy proposals that aim to improve resolution arrangements.
These proposals look at introducing processes that will allow for the managed wind-down of a future failed investment firm, including resolution plans and a new insolvency regime for investment banks, with special administration objectives.
The consultation paper looks at proposals that will help client assets and money held on trust by an investment firm be returned as quickly as possible, as well as proposals to allow the trades that the failed firm has entered into to be resolved effectively to ensure clarity for affected counterparties and creditors.
Although the Government has powers to lay secondary legislation under the Banking Act 2009 to introduce its proposals, it is seeking market and regulatory solutions wherever possible.
Notes for Editors
1. The report, 'Establishing resolution arrangements for investment banks', is the Governments second consultation paper, and sets out detailed proposals for effective resolution of a failed investment firm. The Government published an initial paper, titled "Developing effective resolution arrangements for investment banks", in May this year.
2. As part of the Government's commitment to an open review, this document, like the last one, has been developed in collaboration with an Advisory Panel of over 30 industry experts (as well as the Bank of England and FSA).
3. The Government will continue to work with the advisory panel, the Bank of England and FSA to refine and develop these proposals, and to measure their likely costs and benefits. A final report will be published in 2010, setting out concrete proposals and a timetable for action.
4. The Government welcomes responses to the issues and questions raised in the paper by March 16 2010.
5. The report can be found at: http://www.hmtreasury.gov.uk/consult_investment_banks.htm
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