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BoE and Standard Chartered clash over bail-ins

Friday 1 October 2010 - by Andrew Hickley

The Bank of England has clashed with Standard Chartered Bank over the use of bail-in systems for banks at a conference this week.

Speaking at the Eurofi event in Brussels yesterday, BoE deputy governor Paul Tucker said that the use of bail-in systems could lead to positive changes in the structure of capital markets and was one of the most important tools.

But Standard Chartered group finance director Richard Meddings contested this saying that bail-ins “have a real problem” and that it would render capital in the bank useless to shareholders.

Bail-ins would allow regulators to force creditors to swallow losses in an institutional crisis while a bank is still running.

This would avoid the collapse of the bank and ensure taxpayers do not have to foot the bill.


Meddings said: “If we roll in triggers while the bank is still running, my instruction to my treasurer is that as soon as I see a bail-in, I want my money out of that bank - and that will be the reaction in the market.

“Out of 100 units of capital in the market, 90 is at risk, so I will be decadent to my duty to my shareholders if I leave my money in that bank. If I see any evidence of a bail-in it will be insufficient. It works after the crisis, it does not work when the bank is a going concern as it triggers default, so I think bail-ins have a real problem.”

But Tucker said: “I don’t think you understand where we’re going, because the other choice is liquidation.

“And in those circumstances the spill-overs are greater, and there is no doubt that what we’re describing here will lead gradually to changes in the make-up of bank balance sheets and the structure of our capital markets. There should be no doubt that taxpayers are not going to be standing behind our banks.”


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