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UK banks: Booting out the boss not on

Tuesday, January 21 16:56:50

British proposals to force out bosses at any bank shown as weak under a new regime of health checks go too far and need to be reconsidered, Britain's banks have warned.

The Bank of England (BoE) has said it could install new management at any bank where problems are unearthed by more stringent "stress tests", due to start later this year and which go further than regulators elsewhere.

The proposals are part of efforts to clean up banks and avert a repeat of the financial crisis of 2007-2009.

A joint response this month from the lobby groups of Britain's banks and building societies said management change should not be part of the outcomes of the stress tests, instead arguing the tests should encourage debate and formulation of strategies to address areas of weakness.

"A more proportionate alternative would be to give those banks that are in need of further management actions a period of time to develop and submit revised capital plans in line with the publication of the results," the response paper said.

Regulators around the world are setting up more intense and challenging "stress tests" of bank finances, after criticism past tests have missed trouble spots, especially in Europe.

The aim is to ensure banking systems and individual firms are strong enough to withstand a deep recession or other unexpected problems and avoid a repeat of the financial crisis when dozens of banks needed taxpayer help.

Changing management is one of a wide range of possible remedies the BoE said it could use when it started a consultation in October. It could also force banks to cut dividends, raise equity or axe some activities if they are shown to be vulnerable in the annual health check.

Britain's banks have conducted ad-hoc tests since 2009 and the BoE is stepping up its activities after taking over industry regulation in April. The European Central Bank has also pledged to make tests of more than 100 lenders this year more stringent than in the past.