The Swiss put CHF6 billion of funds into UBS. None of this counts the costs to the broader economy. The UK suffered from a credit crunch, particularly for lending to SMEs: the businesses that make up LBG and RBS – the two banks in receipt of state support – accounted for over 50% of the pre-crisis stock of corporate lending. The damage to economies generally from a financial system on long lasting lifesupport has been deep and wide. In the UK, five years later the economy is still smaller than before the crisis. Around half of a million more people remain out of work. With the costs of bank failures so high and the choices when they did so unpalatable, it is perhaps not surprising that post-crisis there had been pressure to reduce the probability of failure, particularly for large international banks, as close to zero as possible. Indeed, some have argued that banks should become unlevered mutual funds – effectively the solution is to ban banking. Others argue that regulation cannot hope to lower the probability of failure. With greater resources, the banks will always be one step ahead and find new ways to game the rules. Instead the authorities should focus efforts on ensuring that is completely safe for banks to fail. Large banks should be broken up into many smaller businesses that are easy, individually to resolve, even if that means forgoing economies of scale. The international regulatory community has taken a different two-pronged approach.
12 While we recognise that there could be further changes pending the finalisation of IBA’s proposal, there was broad consensus within the Committee that we should keep building on the strong momentum generated over the past year. Let me share with you four key takeaways of the SC-STS, arising from these latest developments. 13 First, the proposed extension of LIBOR discontinuation means that SOR will end when LIBOR ends in mid-2023. This has two benefits: One, it will allow about 70% of existing stock of legacy SOR cash products [6] or about $ of bilateral and syndicated loans to mature before the new deadline. This is a good development, as financial institutions will have a smaller stock of legacy transactions to manage. Two, the extension provides time to do more to actively transition legacy SOR contracts to SORA, and to deal with the most challenging legacy transition issues. We seek to complete this transition as an industry by no later than end-2022. Stopping new use early 14 Second, it must still be the case that we stop adding to legacy SOR exposures as soon as practicable. Hence: There was unanimous support within the SC-STS to cease the use of SOR in new cash market products by April 2021, as originally announced.