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UK banks to trial living wills

A small selection of UK banks will this year start trials of so-called "living wills" which have been encouraged by the Financial Services Authority (FSA) in the event of a collapse of a banking institution. In simple terms these so-called living wills will allow regulators to come in and have ready made plans to wind down the operation, exposing every nook and cranny and investment operation in a short space of time.

One of the problems we saw when the credit crunch began was the fact that many banks and many financial institutions had in fact acquired sliced and diced investment products which were indirectly connected to various banking institutions. Once one of the major components of the investment chain collapsed the whole system began to fall like a pack of cards and ultimately investments which had been worth billions upon billions of pounds became worthless overnight.

This stricter regulatory environment in the UK, and around the world, should at least reduce the chances of one major financial collapse dragging down the whole sector although how detailed and how useful these plans will be remains to be seen. The FSA has been very proactive on this particular front and the trial, which begins this year, will offer an interesting look into the UK banking sector.

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