Business

BoE deputy says he wants a world where 'banks can fail'

  • 2 December 2015
  • From the section Business
Bank of England Deputy governor Sir Jon Cunliffe Image copyright Reuters

The Bank of England deputy governor has said he wants to help create a world where "banks can fail" following the second round of annual stress tests for the UK's biggest lenders.

Sir Jon Cunliffe said banks had to be able to go wrong, but in an "orderly way" which did not disrupt the economy.

He said they were establishing legal powers and levels of capital to ensure future resilience.

Seven banks were tested to see if they could survive a financial shock.

It was assumed that oil had fallen to $38 a barrel and that the global economy had slumped.

No bank was ordered to come up with a new capital plan, but RBS and Standard Chartered were found to be the weakest institutions.

"Banks need to be able to go wrong and have the resources to deal with that......the lesson from the financial crisis is it's not just about individual banks, it was what happened when the system as a whole failed right across the banking system, given the interconnections between them."

"So while I want to see a world in which banks can fail, I also want to avoid the financial system as a whole suffering the instability and breakdown that we saw 7 or 8 years ago," he told Radio 5 live's Wake up to Money.

Emerging risks

The deputy governor said the banking industry was entering a new phase and they were satisfied that "we're not quite at the level we need to get to, but we're pretty close".

Sir Jon also warned action may need to be taken in the buy-to-let market following a sharp rise in the number of investors.

He said the Bank of England had to monitor any emerging risks, because the sector had grown faster than any other part of the housing market.

"I think you have to ask questions about are there risks here....and if necessary you have to take action to curtail those risks."

The Bank of England's Financial Policy Committee, which announced its results on Tuesday, took no action on the buy-to-let market at its last meeting.

More on this story