Bank of England: how to solve Too Big To Fail

Author: | Published: 29 May 2013
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Interview transcript

Q: How should the Too Big To Fail problem be solved?

The too big to fail problem has been front and centre of the debate over the last four or five years during the course of the crisis, and encouragingly quite a lot has already been done and agreed to try and get our arms around that problem.

So we're requiring the biggest banks in the world to hold more capital. We're putting in place regimes for resolving them, winding them down in hopefully a more orderly way. And we're also embarked globally on measures to reform their underlying structures - the Volcker proposals in the US, the Vickers proposals here in the UK. Indeed on the continent of Europe, the Liikanen proposals which were also all about altering the structure of banking.

So all that's happening, it's all good stuff, it's all necessary. But the debate really is whether it is sufficient and I think the emerging view there both among market participants and officials like myself, is that there is still unfinished business remains to some extent still unsolved.

If so, which way next? Well personally I'm open-minded about what form extra measures might take if they do need to be taken. We could ask the biggest banks to hold an extra slug of capital in addition to what has already been agreed. The debate in the US is floating around that sort of issue right now.

We could, and others have floated this too, impose explicit limits on the size of the biggest banks. That sounds quite a draconian thing, but I think if we found ourselves in a position where other measures hadn't proved adequate, it should remain on the table.

So break-up isn't the only option, there are plenty more options that can and should be tried, we should recognise that as things stand today, more might well need to be done to tackle the problems. The biggest problem, if you like, the crisis has thrown up.

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Part 2: Bank of England’s Andrew Haldane defends leverage ratios

Part 3: Bank of England’s Andrew Haldane outlines how best to regulate shadow banks

Part 4: Bank of England’s Andrew Haldane on the risk of 'zero interest rates’