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Former Bank of England Official Warns Against Bail-In
29 September 2013
(EIRNS)—The Herald Scotland reports on statements by Prof. Charles Goodhart, former member of the Bank of England Monetary Policy Committee, at a conference at the University of Edinburgh, in which he warned against the bail-in policy. Goodhart "said proposals to require bond holders to trade some of the debt they hold for equity, which have been welcomed by [Britain’s Chancellor of the Exchequer] George Osborne, could trigger a range of unintended consequences. Director of the Financial Regulation Research Program at the London School of Economics, Mr, Goodhart said bail-ins could result in investors that specialize in buying distressed debt, acquiring significant shareholdings in U.K. banks. Noting the £1.5 billion bail-in proposed at the Co-Op Bank, Mr. Goodhart said: ’The people who come in will be the American vulture funds.’" Goodhart added, "It is legal heaven. Everyone is going to sue everyone and the suits will go on forever." He believes bail-in provisions could frighten overseas investors away from bonds issued by U.K. banks and U.K. pension funds may be left to fill the gap. This might have implications for returns generated by the funds. At the same time, banks would pay higher interest rates on bonds. [ccc] |