US, UK regulators to conduct war games to simulate bank failures

Regulators in the US and UK plan to carry out their first so-called war games to simulate the failure of a major cross-border bank in a test of their defences against the type of crisis that crippled the financial system in 2008, Bloomberg reported.

The exercise will take place on 13 October and involve Federal Reserve chair Janet Yellen and Bank of England governor Mark Carney in Washington. It is aimed at testing the global framework on bank resolution to ensure that no lender was too big to fail, according to the UK finance ministry.

US treasury secretary Jack Lew, deputy secretary Sarah Bloom Raskin and British chancellor of the exchequer George Osborne would also take part.

The move comes as governments around the world implement a package of measures aimed at putting an end to publicly-funded bailouts when banks collapsed in the future.

The Financial Stability Board, consisting of regulators and central bankers from around the world, planned to present new rules on the issue to a Group of 20 summit next month in Brisbane, Australia.

''We need to make sure that taxpayers are not on the hook for future bank failures,'' said Osborne, who told reporters at a briefing in Washington that this was the first such event. ''We also need to strengthen cross-border co-operation on this issue.''

Regulators from the US and the UK would get together in a war room next week to see if they can cope with any possible fall-out when the next big bank collapsed, the two countries said yesterday, euronews reported.

''We are going to make sure that we can handle an institution that previously would have been regarded as too big to fail. We're confident that we now have choices that did not exist in the past,'' Osborne said at the International Monetary Fund's annual meeting.

Six years after the financial crisis, politicians and regulators around the globe were keen to prove that they had created rules that would allow them to let a large bank collapse without having to spend billions in a taxpayer-funded rescue.

They had forced banks to raise equity and debt capital levels to protect taxpayers against losses, and had told them to write plans which were called living wills, that laid out how they could go through ordinary bankruptcy.