U.S., UK bank seizure plans focus on absorbing losses: regulators

WASHINGTON, Mon Dec 9, 2012 — Both the United States and United Kingdom have developed viable approaches to seizing and unwinding failing global financial institutions, but more work is needed on the UK side to ensure that losses can be adequately absorbed, American and UK regulators said on Sunday.

The Bank of England and the U.S. Federal Deposit Insurance Corp. said in a joint paper that each country’s plans for dealing with the types of cataclysmic financial failures that marked the 2007-2009 financial crisis would reduce risks to financial stability.

“The FDIC and the Bank of England have developed resolution strategies that take control of the failed company at the top of the group, impose losses on shareholders and unsecured creditors — not on taxpayers — and remove top management and hold them accountable for their action,” they said in the paper.

The new authorities to seize and resolve so-called global systemically important financial institutions came in the United States from the 2010 Dodd-Frank financial reform law, and in Britain from the anticipated approval by early 2013 of the European Union Recovery and Resolution Directive.

Both the U.S. and UK approaches ensure continuity of all critical services of the failing firms and minimize cross-border contagion, the regulators said.