UPDATE: UK BOE Bailey: Living Wills To Question Bank Structures

UPDATE: UK BOE Bailey: Living Wills To Question Bank Structures

(Adds details, background.)

By Adam Bradbery

Of DOW JONES NEWSWIRES

The preparation of "living wills" to enable banks to be wound down when they run into financial difficulties will result in hard questioning about their business models and organizational structures, a senior Bank of England official said Tuesday.

"They will be a tool for the authorities rigorously to ask the question, 'with this structure and business model, could I achieve a resolution at an acceptable cost'," said Andrew Bailey, executive director for banking services at the BOE at a banking conference in Spain.

The U.K. regulator, the Financial Services Authority, is working with the biggest financial institutions in the country to help them develop living wills which are designed to act as blueprints for supervisory authorities to wind them down and manage their exposures quickly at times of financial trauma.

Bailey said the BOE and the FSA, which are part of the tripartite authority of financial oversight, will jointly assess whether these living wills are workable and whether they show that a company's business model or organizational structure need to be changed.

"Resolution plans need to be there to be used, and I can assure you that the Bank of England, in its role as a resolution authority, will be placing great emphasis on the existence of credible and useable resolution plans," said Bailey.

The BOE official said this questioning will take place for both domestic and cross-border banks but that a large amount of work will need to be done in making sure resolution regimes in different countries adequately cover international firms.

The FSA published a discussion paper last month on how to deal with banks that are deemed "too big to fail" in which it suggested that, if a firm's living will indicated it would be difficult to wind down, the bank might need to be restructured and, potentially, have its retail and trading arms separated.

Paul Myners, the U.K. Treasury's financial services secretary, said earlier this month he believes the use of these resolution plans would force more banks to structure themselves as subsidiaries, which operate as standalone units, rather than branches, which rely on their parents in other countries for capital and liquidity.

-By Adam Bradbery, Dow Jones Newswires; 44 20 7842 9305; adam.bradbery@dowjones.com

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