Financial Institutions - Too Important To Fail?

"Radical reform needed to reshape banking system for long-term - public will not stand another bail out"

This inquiry considered the issue of the existence of a type of financial firm, or firms which are ‘too important to fail’ - so integral to the financial system that it was necessary for governments to bail them out during the banking crisis. The Committee concluded that the actions governments had to take to ensure financial stability resulted in a market that operated on the assumption that systemically important firms will be rescued if necessary and radical reform was needed.

Report | Oral and Written evidence | Press notice | Government Response (PDF PDF 399 KB)

Background Information

At the height of the financial crisis, Governments authorised a massive injection of public funds to rescue ailing private financial institutions in order to prevent a collapse of the financial system. There was general agreement of the need to minimise the risk of this re-occurring both because of the cost to the public purse, and because, for many commentators, the implicit assumption that Governments will step in to support private financial institutions that are simply ‘too important to fail’ will drive excessive risk taking such as that which created the crisis.

Oral Evidence

As part of the inquiry the Committee held the following evidence sessions. To access the transcripts for these sessions please click on the link at the top of this page.

19 January 2010

Witnesses: Professor Charles Goodhart, Programme Director, Regulation & Financial Stability, Financial Markets Group and London School of Economics Professor Emeritus of Banking and Finance, and Professor John Kay, Visiting Professor of Economics at the London School of Economics and a Fellow of St John’s College, Oxford

26 January 2010

Witnesses: Mervyn King, Governor, Paul Tucker, Deputy Governor - Financial Stability, and Andrew Haldane, Executive Director, Financial Stability, Bank of England

9 February 2010

Witness: John Varley, Chief Executive, Barclays

22 February 2010

Witnesses: E. Gerald Corrigan, Managing Director, Goldman Sachs; Douglas Flint, Group finance Director, HSBC

23 February 2010

Witness: Alfredo Saenz, Vice Chairman and Managing Director, Santander

2 March 2010

Witness: Lord Turner, Chairman, Financial Services Authority

4 March 2010

Witness: Baron Alexandre Lamfalussy


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