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Companies could be rated on default risk

Businesses could be publicly rated according to their risk of default under plans for the new regulatory regime.

Last week, the FSA and the Bank of England unveiled a proactive intervention framework as part of its proposed approach to regulating banks.

The framework aims to provide early identification of the risks to firms’ viability and ensure firms take appropriate remedial action to reduce the probability of failure.

It will also flag up actions that the regulator needs to take in advance to prepare for the failure and resolution of a firm.

The framework has five stages, with stage one being low risk, stage two moderate risk, stage three material risk, stage four imminent risk and stage five for firms in the process of being wound up.

Speaking at the launch event of the PRA plans in London, chief executive designate Hector Sants said: “We are still thinking about whether and when to make this information public.”

The Bank of England’s special resolution unit is responsible for winding up failed financial institutions.

Sants said the unit is currently capable of winding down small and medium-sized firms but there is more work to do before big institutions can be resolved safely.

PRA deputy chief executive designate Andrew Bailey said: “If we get to a world where we are comfortable that we can deal with the resolution of institutions, we would be much more likely to be open about where firms stand.”

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