Corporate banking could be subject to new failure measures

The corporate banking sector could expect new guidelines on bailouts in the event of failure, if changes supported by the British government go ahead.

Michel Barnier, the European Union’s (EU) internal markets commissioner, said the proposals would limit the power of future European financial regulators.

Governments would be under no obligation to rescue troubled banks using taxpayers’ money, a system which would be welcomed by UK officials, but is resisted in countries such as France, noted the commissioner.

Many corporate banking groups were shored-up by EU governments during the credit crisis.

Geoffrey Wood, professor of economics at Cass Business School, argues national sovereignty in similar situations is very important. He advocates a pre-planned closure system to allow countries to shut down failing banks without undue pressure on national finances.

The economics expert argues there should be a ’minimum set of [international] requirements’ concerning the rescue of financial institutions, but says the provision of a dedicated bailout fund would ’[create] a moral hazard’. ADNFCR-2318-ID-19831732-ADNFCR