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King tells banks to set out their last will

Bank of England governor Mervyn King has called for banks to write their own “wills” to allow the authorities to implement an orderly wind down of business in the event of a future collapse.

In his Mansion House speech in the City of London last week, King argued that a planning for the deconstruction of a business would be invaluable if a financial institution went bankrupt.

He said: “Making a will should be as much a part of good housekeeping for banks as it is for the rest of us. A plan for an orderly wind-down of activities would provide the information to the authorities the absence of which made past decisions about the future of institutions difficult.”

King also reiterated his call for the BoE to be given greater powers to help it maintain financial stability. He said: “It is not entirely clear how the bank will be able to discharge its new statutory responsibility if we can do no more than issue sermons or organise burials.”

CMS Cameron McKenna partner Paul Edmondson says: “King is right to challenge the position and demand effective powers to meet the bank’s responsibilities for financial stability.

“The FSA’s toolkit for firm regulation is reasonably comprehensive but the Bank of England is hamstrung. The new provisions for the financial stability committee are wholly inadequate and there is still a huge question as to how macro-prudential policy will actually be deployed.”

King once again called for the break-up of the biggest UK banks. He said that retail and investment banking functions should be separated.

LibDem Shadow Chancellor Vince Cable says: “If major banks are going to continue to rely on taxpayer guarantees, they must be broken up and their investment banking, gambling, operations split off from straightforward personal and business banking. It is an outrage that the British taxpayer should have to act as guarantor of high-risk banking in global markets.”

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