BaFin's Sanio: no fix for cross-border failure

Jochen Sanio, the president of BaFin, Germany's financial regulator, on Monday warned that regulators were "light years away" from resolving the failure of cross-border banks.

Sanio told bankers and academics at a Centre for Economic Policy Research conference in London: "Cross-border resolution is the key issue for regulators, but as we stand now, we're not prepared to deal with it. It is the final frontier of regulation, but we're light years away from solving it."

Sanio acknowledged that such negativity was rare from regulators, often renowned for "merciless optimism". However, the failure of Lehman Brothers and other lenders had tempered his faith in supervisors' ability to work together in handling the failure of a cross-border bank. "The first I knew about Lehman Brothers' failure was when I was watching CNBC on the Monday morning [of 15 September] at 3am. It was only two hours' later that I got a call from my fellow supervisors," Sanio said. Peter Praet, an executive director at the National Bank of Belgium and a member of the Basel Committee on Banking Supervision, however, later said US officials had told him of Lehman Brothers' failure at midnight and had warned earlier on the Sunday that the investment bank's collapse was a possibility.

Sanio admitted that faced with a similar set of circumstances as US regulators he would have done the same. "If you believe you're so close to saving a bank, then you're not going to have time to call your fellow supervisors."

His experience had, he said, taught him that burden sharing between countries was impossible. "Getting burden sharing on a voluntary basis is a delusion," he said. "You therefore have no choice but to ringfence the assets of a subsidiary of a bank that fails, otherwise your public will hang you."

Sanio acknowledged that a pan-European solution was a possibility. However, the crisis had highlighted the need for a global regime. The most viable solution, instead, was for the lead regulator to "foot the bill for the funeral."