Let the banks fail says Stevens

Bank regulators need to be able to let banks fail, a view that must inform decisions and regulations on how complex banks are allowed to become, Glenn Stevens, governor of the Reserve Bank of Australia, said last night. "The objective [of bank regulation] should be to foster arrangements that preserve the genuine benefits of an efficient and dynamic financial system, but restrain, or punish, the really reckless behaviour that sows the seeds of serious instability."

These observations led Stevens to the key point in his speech: "Such arrangements surely have to include allowing badly run institutions to fail, which must in turn have implications for how large and complex they are allowed to become," said Stevens "The finance industry, certainly at the level of the very large internationally active institutions, needs to seek to be less exciting, less ambitious for growth, less complex, more conscious of risk and more responsible about where those risks end up, than we saw for the past decade or two."

Source: Banking Day