Now here's a simple, straightforward plan for British banks that are deemed "too big to fail": By the end of the year, large British banks will be required to draw up "living wills" in which they outline procedures to help them wind down in the event of failure.
The living wills will also include ways of separating the banks' deposit-taking arms from securities trading units.
The Financial Services Authority (FSA) will also require the too-big-to-fail banks to hold more capital as protection in the event of a bank failure. The authority has said that bumper bank profits are to be used to bolster balance sheets -- not for bankers' bonuses.
The message to the banks is clear: We want you take care not to put the country in jeopardy again or create havoc throughout the world.
This no-nonsense approach should be adopted by the U.S. Treasury Department and the Federal Reserve. Why not put our banks on notice that "too big to fail" is no longer an option? Why not break up our big banks into two parts -- one for customer deposits and the other for riskier trading operations? Why not force banks to use profits to bolster their balance sheets instead of for outrageous bonuses?
The idea of living wills for U.S. banks is a sound one. Why not do it here also?
Do you agree that the idea of living wills for banks should be adopted here in the U.S.
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