* Five years after Lehman, U.S. Congress has provided needed
* Tucker says that is not the position in Europe
* BoE to publish groundbreaking policy on banks supervision
By Huw Jones
LONDON, Sept 17 The United States has largely
cracked the problem of protecting taxpayers from the danger of
having to bail out banks that are "too big to fail" while Europe
lags behind, Bank of England Deputy Governor Paul Tucker said.
Allowing large banks to fail without the massive disruption
seen when Lehman Brothers collapsed five years ago this week has
been the ambition of policymakers after governments had to
rescue many lenders in the 2007-09 financial crisis.
Such banks, believing governments cannot afford the harm to
economies of letting them go under, are tempted to take bigger
risks and unfairly benefit from cheaper funding as investors
know taxpayers would always rescue them, policymakers have said.
"Were some of the biggest Wall Street firms to fail this
week... I think it would be very hard for the President and U.S.
Treasury Secretary to persuade the Congress to commit taxpayers'
money," Tucker told a London School of Economics seminar on
This is because Congress has given the U.S. administration
powers and instruments to wind down big financial firms, though
it would not be smooth or without ripples, Tucker said.
"The capital structure of big firms is such that it could be
done on a global basis, and I don't think I am alone in thinking
that in the official sector," said Tucker, who steps down this
autumn to become an academic in the United States.
"I think it could be done now under duress by the American
authorities with the authorities elsewhere stepping aside. I
don't think that is the position in Europe."
The European Union has yet to approve a law to give
supervisors tools to break up and close failed banks.
Tucker, who chairs a working group on global coordination on
winding down banks at the Financial Stability Board, said big
lenders will need to reorganise themselves over the next few
years to "make themselves more conducive" to using these tools.
Work by the FSB over the next year or two will reduce the
ripples and mess from a banking failure even futher, he said.
The Bank of England, which supervises banks in Britain,
would be prepared to "step aside" and allow the United States to
wind down a global bank that had operations in London, he said.
He took a swipe at industry lobbying on new rules, saying
the banking sector could be more helpful in the process.
"It's hard to take seriously either the comments before the
rule is fixed or the comments after the rule is fixed, which is
pretty serious frankly given the depth of knowledge and help
that we could get from the industry," Tucker said.
It was also "bananas" to go by hard rules alone and not
judge by other criteria as well when checking whether a bank is
"This is why we at the Bank of England are trying to pare
back the reliance on rules and say, actually, we want sound
banks run well with rather more criteria than that," he said.
The Bank of England will publish a paper on supervision
based on such an approach, described as "constrained discretion"
in the next few weeks, drawing on how the U.S. Federal Reserve
has conducted stress tests of banks.
The new policy will have the potential to change the
landscape over 10 to 15 years, Tucker said.