The US and UK will stage a comprehensive simulation next week check whether the countries’ financial and banking sectors are still vulnerable to the problem of the ‘too big to fail’ institutions and coordinate their actions in case of such collapse.
Government financial leaders from Britain and US will simulate a failure of a large banking institution on Monday in Washington, DC, to test the effectiveness of each county’s banking regulations.
They hope the simulation – which will not mimic the collapse of
any particular ‘too big to fail’ institution – will demonstrate
what the officials have learned from the financial crisis about
their respective roles, and how new practices should shield
taxpayers from further bailouts. The simulation will run through
procedures if a large UK bank with US operations failed, and
those for a US bank with a British presence.
“We are going to make sure we can handle an institution that
was previously regarded as too big to fail,” said UK
chancellor, John Osborne, speaking to journalists at an
International Monetary Fund meeting in Washington on Friday.
“This demonstrates the distance we have come over the last
few years to build resilience and learn the lessons of the
financial crisis.”
READ MORE:‘Too big to fail’ status gives US banks ‘free pass’ – Fed study
Participating in the “war game” along with Chancellor Osborne will be US Treasury secretary Jack Lew, head of the Federal Reserve, Janet Yellen, and the governor of the Bank of England, Mark Carney, with senior officials from both countries.
“The purpose of the simulation was to make sure every player, including politicians, knew their own responsibilities and who needed to act, which creditors would take a hit, and how to communicate the authorities’ actions to the public,” Osborne told the Financial Times.
the only winning move is not to play RT @vgmac On Monday, US and UK regulators will "war game" a big bank failure. http://t.co/b7RWCsngYU
— Matthew Zeitlin (@MattZeitlin) October 10, 2014
It has been six years since the 2008 financial crisis when $700
billion in taxpayer dollars was used to shore up failing
institutions, besides the cost of other bailout programs such as
for Fannie Mae and Freddie Mac that totalled at least $135
billion more. The financial crisis lead to mass unemployment,
drastic cuts to US government social programs, and contributed to
the economic downfall of several European states.
READ MORE:JPMorgan 'agrees' to tentative $13 billion penalty for role in 2008 financial crisis
Since then regulations have passed in the US – the Dodd Frank Act of 2010 that forced banks to have in place capital and to draw up plans of how they would go through an ordinary bankruptcy and which groups would be paid off first.
Next week’s simulation, the results of which are expected to be released to the public, is designed to reassure the taxpayers in both UK and the US that their money will not be misused next time when a large financial institution turns out to be not that big to fail.
READ MORE:Record global debt risks new crisis – Geneva report