‘Orderly failure’ should be allowed says bankers’ boss
BANKS should be allowed to fail, but should do so in an “orderly” manner without causing massive damage to the financial system, the chief executive of the British Bankers’ Association has said.
Addressing the Business and Professional Services Conference in Manchester Angela Knight said early intervention by the new Bank of England-led regulatory bodies was vital too if Northern Rock and Lehman Brothers-style failures are to be avoided.
Acknowledging that mistakes had been made by banks in the run up to the financial crisis, she said it was wrong to attach all blame to them. The handling of the crisis could have been better too, she said.
“Northern Rock made a massively bad set of errors, but we didn’t, have to have a run on it.”
She said mistakes had been made in the way Lehman Brothers had been allowed to unwind and effectively paralyse the global financial system, and that action should be taken before insolvency to transfer assets to a ‘bridge bank’ to minimise the impact to customer and the taxpayer.
“I think we can get there, we believe we are really on the way to ensuring that any bank if it gets into difficulty, it can be effectively resolved.”
She said although the ‘bricks and mortar’ of banks were still the same, huge amounts of change had occurred behind the scenes in the sector, involving the way banks are run, funded and regulated.
While she said it was easy for the media and businesses to blame the banks for not lending freely enough – too much lending had helped cause the financial crisis in the first place.
“Not every business survives a recession – and I think we may all be suffering something of a corporate memory loss and that one of the real reasons for the crisis was too much lending.”
