The plan is for a single national regulator to take responsibility for overseeing the insolvency of G-SIFIs in order to prevent the uncertainty and confusion caused after the 2008 collapse of Lehmann Brothers.
The aim is to make sure that a bank’s critical services continue to operate in a crisis, in order to insulate foreign operations, shrink the bits of the bank that caused the problems, and to fire those responsible.
Big banks will need to hold enough capital, or debt that could be converted into capital, in order to absorb any losses that would be generated as the bank is resolved or made safe.
The theory is that in the event of another financial crisis, the Bank of England wouldn’t have to call on the Treasury to put as much money into Banks that are facing collapse, because their creditors would be forced to become shareholders.
If successful, this should limit the costs to taxpayers and the wider economy in the next banking crisis.