Insurers slam plans for post-N. Rock reform

By Clara Ferreira-Marques

LONDON (Reuters) - Insurance companies, one of the Britain's largest shareholder groups, have told the government that plans to swoop in early on ailing banks could hurt investors and hit confidence in London as a financial hub.

The government, reeling from the near-collapse of lender Northern Rock, said in January it was consulting the industry on improving the regulatory framework to preserve financial stability and protect depositors should a bank fail.

One of the key proposals was for a "special resolution regime" that would apply if an institution got into trouble, giving the authorities the power to appoint a restructuring officer in exchange for emergency support.

The Association of British Insurers, however, said premature intervention risked overriding the rights of shareholders and wholesale lenders, unless there was genuine systemic risk and a move could be justified on the basis of a clear set of triggers.

"As shareholders we clearly understand and accept that banks, like all businesses, will sometimes fail. Wherever possible, the market should be allowed to operate," the ABI told the government in its submission to the consultation.

It said investors worried whether their property rights would be respected in the event of a bank collapse.

"Our members have been concerned, both in relation to (collapsed rail operator) Railtrack and Northern Rock, at the ease with which the government dismisses the rights of shareholders," the ABI said.

Shareholders in Northern Rock, nationalised in February, are seeking a judicial review over compensation plans.