The Financial Services Authority (FSA) is preparing plans to compel UK banks to be ready with “living wills”, so that they can be easily tackled during the times of liquidity crunch – reported The Financial Times.
According to FSA, a major part of the contingency planning would focus on measures to minimise risk and stabilise funds. However, large banks in the UK, on their part, will have to protect customers’ assets and unwind trading books within 60 days of a collapse.
Reportedly, they have to disclose which businesses and subsidiaries they would sell to raise emergency funds. The large banks will also have to come up with a “contingent resolution plan” to transfer customers’ asset to a third party, to reduce the infrastructure exposure of the firm.
At a forum at the London School of Economics, Thomas Huertas, banking sector director, FSA, said: “If an institution cannot wind down its trading book in 60 days we will have to have a discussion about why things are in the trading book at all,” reported the newspaper.
