LONDON (MNI) – With international reform aiming to end taxpayer
support for commercial banks, bank bondholders and insurers are going to
have to face up to enhanced risks, Bank of England Deputy Governor Paul
Tucker says.
Tucker looks at how things will change because of the international
drive to ensure banks do not benefit from a taxpayers’ safety net. He
says regulators will have to look more closely at the insurers exposed
to banks and bondholders will have to better understand the risks
attached to the banks they are funding.
“Withdrawing the safety net from banks will require the other parts
of the financial system to be sound, because they will have to stand on
their own feet,” Tucker says.
“Holders of bank paper – especially bonds – will be living
in a different world. They will have a big incentive to monitor the
riskiness of banks,” he adds.
He hopes the current situation, where the leading bank analysts are
equity analysts, will change.
The regulatory reforms should ensure “some leading analysts will
concentrate on debt rather than equity, on the downside risks: credit
analysts. They will be needed,” he says.
He restates his call for bank management to be partly remunerated
through subordinated debt as “management would then have a clear
personal incentive to focus on and contain tail risks.”
Insurers benefited directly from the taxpayer support banks
received during the financial crisis.
Tucker says insurance regulators will have to take the removal of
the taxpayers’ safety net into account, adding “We no more want
insurance to be part of a socialised financial sector than banking.”
Tucker made his remarks at the book launch for “Investing in
Change: The Reform of Europe’s Financial Markets” at an Association of
Financial Markets in Europe book launch.
–London newsroom 0044 20 7862 7491; email:drobinson@marketnews.com
[TOPICS: M$B$$$,M$$BE$]
