The House of Commons Treasury Committee has published a report on its inquiry into financial institutions and whether they are too important to fail. The Committee’s report is entitled Too important to fail - too important to ignore.
The report looks at the range of banking reforms currently under consideration, and assesses them against the objectives of an orderly banking system such as protecting the consumer, protecting the taxpayer, setting an appropriate cost of doing business and providing lending to the economy. The Committee accepts that there are trade-offs between these objectives: the more consumers are protected, the more risks tax payers may have to bear; the more banks have to pay for their capital and the higher the rates they will charge their customers. The Committee believes that policymakers will have to decide where the trade-offs should properly be made and how this should be explained to the public.
The Committee believes that radical reform is necessary but accepts that it cannot be achieved immediately. It states that an indication of improvement will be a system which enables a large international institution to go bankrupt smoothly, and where prices in financial markets do not implicitly or explicitly assume a government guarantee.
View Too important to fail - too important to ignore, 22 March 2010