BOE's Haldane: Worried Bail In Rules Won't Be Enough

FRANKFURT--Rules that force a bank's creditors to lose money, rather than the taxpayer, may be insufficient to address the problem of banks being too big to fail, said Andrew Haldane, the Bank of England's executive director for financial stability Tuesday.

"Faithful implementation" of the regulatory reform agenda that has been pursued in stages since the financial crisis of 2008 is "an absolute necessity," said the BOE official at a conference here on the future of the banking sector. He said, however, that such a move is "necessary, but perhaps not sufficient."

The central banker said, "when a big bank fails, bail in is never a soft option...the temptation is always there for governments to reach for the check book," referring to when creditors are forced to take losses. He said the temptation to bail out rather than bail in was "irresistible."

Mr. Haldane said that to get past this problem authorities needed to have set rules that "tied their hands" and that tougher capital standards for banks should be considered. He referenced a proposal in the U.S. to up the leverage ratio for some banks to 15%, rather than the 3% envisaged in international rules known as Basel III.

"I don't have a magic number, but I do think the time is right within Europe to reopen the debate about whether 97%-debt financed banks is a suitably proved endpoint," he said.

The event was organized by the German Green Party.

Looks like he's talking about the fractional reserve ratio there?
I thought that many banks incl in the uk have no reserve requirement whatsoever ?

The Bank for International Settlements has crafted a plan to inject major lenders with more cash, in the event of financial failure, while avoiding market chaos and the need to use taxpayers' money.

According to BIS' proposed blueprints, one of the key ways to install systemic confidence, should a bank need to more cash, is by undergoing a forced recapitalisation by its creditors, when it reaches the point of failure.