The problem of dealing with failing banks ‘is still not resolved’

The world’s biggest banks still could not be dismantled safely, more than five years after the collapse of Lehman Brothers, warned the Bank of England’s deputy governor for financial stability.

Jon Cunliffe, the deputy governor, said international standard setters have made progress in reforming banking rules since Lehman went under in September 2008, but the core task of ending too-big-to-fail banks re- mains.

He urged the European Parliament to approve a new European Union law that would give national regulators the powers to wind down ailing banks.

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“I do not think we can say with confidence now that we could resolve a failing global giant,” said Mr Cunliffe, Britain’s former ambassador to the EU in Brussels.

Heads of the G20, the world’s leading 20 economies, will meet in Australia in November. Mr Cunliffe said agreeing new rules to end too-big-to-fail banks is perhaps the most important regulatory priority for the summit.

The success of those reforms will hinge on applying them consistently worldwide and on mutual trust among financial supervisors to avoid unintended consequences, he said.

The EU has expressed alarm that the US is forcing offshoots of foreign banks to hold capital there, to keep American taxpayers off the hook if a foreign lender goes bust, even as Europe introduces reforms to reduce the chances that might happen. Mr Cunliffe echoed the European concern.

“Regulators and supervisors who cannot trust the implementation of standards in other jurisdictions will defend stability in their own jurisdictions by raising barriers,” he said.