‘EU lags US on letting big banks fail’

The US has largely cracked the problem of protecting taxpayers from the danger of having to bail out banks that are “too big to fail” while Europe lags behind, Bank of England deputy governor Paul Tucker has said.

Allowing large banks to fail without the massive disruption seen when Lehman Brothers collapsed five years ago this week has been the ambition of policymakers after governments had to rescue many lenders in the 2007-2009 financial crisis.

Such banks, believing governments cannot afford the harm to economies of letting them go under, are tempted to take bigger risks and unfairly benefit from cheaper funding as investors know taxpayers would always rescue them, policymakers have said.