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."
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.
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.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
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.
Quotes:
"...and how new practices should shield taxpayers from further bailouts. "
"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. "
Oh so very nice of them! A little thinly disguised Tory propaganda.
We already know that the taxpayer is to be protected the next time a TBTF goes down. No bailouts in future, at least from the taxpayer (via the government). No the BoE and FDIC rules mean the TBTF banks get to keep the depositors money instead and the depositor is gifted shares in a zombie bank instead of his capital.
While the taxpayer is most certainly to be protected, those who pat taxes are not!