Consolidation In The Financial Sector Could Cause Banking Crisis

Caroline Maxwell, Tax-news.com, London

29 January 2001

The vice- chairman of the US Federal Reserve has warned that the risk of a global crisis being triggered by the demise of a 'super bank' has increased.

A recent report commissioned by the Group of Ten (G10) nations suggested that due to the recent consolidation in the financial sector, the risk of a global crisis being triggered by the collapse of a major bank has been much increased.

The vice-chairman of the Federal Reserve Bank, Roger Ferguson, was in London on Thursday to unveil the study. Mr Ferguson said that he had not previously believed that the financial conglomerate would become the dominant means of distributing financial services. However, the report finds that the number of market players has been reduced by consolidation, and complex organisations have been created whose transnational operations straddle several regulatory systems.

He warned that were one of these institutions to become distressed, it could have grave consequences for the global economy, but added: 'I am aware of no complex financial institution that may be seriously distressed.'

Mr Ferguson also emphasised that he was not calling for another regulatory institution, and was confident that existing regulators such as the G10, Financial Stability Forum, and the Basle Capital Accord were capable of monitoring the threat. However, he urged policy makers to be on their guard, and to be clear about the implications of further consolidation.

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