Banks should still be allowed to fail in new regime, BoE representative claims

15 July 2010

The introduction of a new regulatory regime within the financial services industry will not prevent struggling institutions from failing, an official from the Bank of England (BoE) has stated.

Andrew Bailey, chief cashier at the BoE, made the comments as part of a speech at the British Bankers Association’s annual conference.

The UK government is disbanding current regulator, the Financial Services Authority (FSA), and establishing the Prudential Regulation Authority (PRA) in its place.

Mr Bailey said: “We are not trying to design a regime in which no bank should ever fail … it would not create the right incentives around risk taking.”

The Bank’s role will change but it will continue to collude with the financial services sector to implement “monetary and financial stability”, he explained.

Part of the main focus for the PRA is to prevent taxpayer money being used to bail-out failed financial institutions in the future.

Meanwhile, Lord Turner, chairman of the FSA, has called for reform to the financial sector to tackle “fundamental issues”.

He said that an overhaul of regulations within the sector must analyse “credit supply instability” to prevent a future banking crisis from occurring.

By Jim Ottewill

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