MPs question ‘too big to fail’

The Treasury Committee will next year begin taking evidence on firms that are too big to fail.

The MPS want to know the extent to which the structure of the current financial system should be reformed, and certain activities regulated, on the grounds of systemic risk.

IT is concerned with the national and international dimension, as private financial institutions that might be considered 'too important to fail' may operate in a purely national context or across borders.

The Committee seeks evidence in particular on:

• The extent to which banks operating in the UK are interconnected (eg in terms of inter-bank exposure, and risks to customers and, more generally, public confidence in the banking system).
• The relationship between size and risk, and business model (including mutual models) and risk.
• The pros and cons of a legal separation of low-risk banking activities such as the management of retail deposits from high-risk activities such as proprietary trading - often referred to as 'narrow-banking' options.
• The pros and cons of alternative methods of preventing financial institutions from being 'too important to fail' (eg minimum capital and liquidity requirements, 'living wills', taxation) and analysis of their likely effectiveness and feasibility including timescales for implementation.
• The challenges posed by cross-border financial institutions and of ways, including subsidiarisation as opposed to branches, of reducing systemic risk on a European or global scale.
• The extent to which individual nations, or regional groups, can or should act alone on the regulation of cross-border entities.