Investment banks: New regime outlined to deal with failed firms Go compare with our comparison table

Investment banks: New regime outlined to deal with failed firms

20 September 2010 / by Paul Dicken

The government is consulting on a new regime to simplify the winding up of major investment banks like Lehman Brothers.

Commercial secretary to the Treasury, Lord Sassoon, outlined the proposals on 16 September which will establish a regime to ‘ensure that the administration of an investment firm is conducted with due regard to clients, creditors and financial stability.’

The focus of administrators will be on returning client assets, engagement with market infrastructure bodies and the authorities, and maximising returns to creditors, the Treasury said.

The move follows the complex process to unravel the affairs of the investment bank Lehman Brothers following its collapse.

The consultation said: “The failure of Lehman Brothers and more than 240 entities trading under its holding company, Lehman Brothers Holding Inc, in September 2008 posed serious challenges for insolvency regimes the world over.”

The current consultation is the third consultation on enhancing the resolution arrangements for investment firms, following an intial paper published in 2009 called ‘Developing effective resolution arrangements for investment banks’.

Lord Sassoon said: “It is crucial to reduce the impact of an investment firm failure on the stability of the UK financial systems. The proposed new special administration regime will provide administrators with clarity and direction to manage a firm’s winding up in a way that is both less expensive and less disruptive.”

The Treasury said extensive consultation had been undertaken with the industry on the new arrangements and did not expect it to mean any additional regulatory costs on the sector.

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