Resources for Basel II Capital Accord (Basel II)

BOE's King & Gieve Demand Regulatory Changes From UK Government

www.economicnews.ca

Bank of England governor Mervyn King called for changes to be made to UK legislation to prevent future situations like Northern Rock.

Speaking before the UK parliamentary Treasury Select Committee Tuesday, King said, "First, the UK authorities are alone in the G7 in being unable to deal with a distressed bank under a special resolution regime. We rely instead on normal corporate insolvency laws. But, if a bank enters administration, depositors may have to wait a considerable time to gain access to their funds.

"Knowing that, they have a strong incentive to join a bank run. So at present we cannot allow a bank to fail unless it is clearly insolvent. In turn, the expectation that the authorities will try to avoid insolvency puts a floor under the bank’s share price and that prevents the authorities from implementing a reorganization of the bank. A special resolution regime is the most important reform now. It will require legislation," the governor said.

Continuing on the same line, he added, "Experience in other G7 countries suggests that a new regime should be supported by credible deposit insurance arrangements. A model for deposit insurance that draws on international experience would have permanent, 100% coverage up to a limit with transparent and widely understood prompt payout commitments."

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