19 April 2014

Trading & Risk Technology

Derek Klobucher - Sybase Inc.

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Too Big To Fail Makes a 'Fine' Mess

13 December 2012  |  2355 views  |  0

Solving the too-big-to-fail problem in banking just got international. Authorities could seize a Global Systematically Important Financial Institution (GSIFI) -- and dismantle it as appropriate -- under a joint plan by the Federal Deposit Insurance Corporation (FDIC) and the Bank of England released Monday.

“For many GSIFIs, this strategy holds the best possibility of preserving stability while removing taxpayer support,” wrote FDIC chairman Martin Gruenberg and BoE deputy governor Paul Tucker in The Financial Times. “It holds shareholders, creditors and management in a failed GSIFI accountable for its losses.”

Strong economic growth in in the U.S. and U.K. may provide strong positions to enact these reforms. Each country’s average long-term economic performance is on the rise, according to a study by Paris-based economic forum Organisation for Economic Co-operation and Development, also released on Monday.

This may make it sound as if all is well in trans-Atlantic finance. But it came to light this week that two of the U.K.’s biggest banks will pay record fines of more than $2.5 billion to U.S. regulators.

London-based HSBC will pay a staggering $1.92 billion to U.S. authorities, the bank announced Tuesday, settling even-more-staggering allegations relating to Middle East terrorist financing and Mexican money laundering. A day earlier, London-based Standard Chartered said it would pay $327 million to U.S. agencies -- in addition to $340 it agreed to pay New York regulators in August -- stemming from allegations of sanctions law violations and hindered government investigations.

Boarding up these institutions is not an option; at least not the way U.S. federal law enforcement might shutter a dry cleaner that served as a mafia front. Making sure that these banks keep liquidity flowing has to be a major concern for governments, especially this soon after the financial crisis.

Let’s not forget that these are still big banks -- too big to fail and too big to shut down.

Related Articles:

Resolving Globally Active, Systemically Important, Financial Institutions” by the Federal Deposit Insurance Corporation and the Bank of England

‘Too big to fail’ plan outlined by UK and US authorities” by Emma Rowley

UK banks hit by record $2.6bn US fines” by Shahien Nasiripour and Kara Scannell

 

TagsRisk & regulation

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Derek Klobucher

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Financial Services Writer and Editor

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Sybase Inc.

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2011

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Dublin

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