Stress test: U.S. and U.K. to model big bank collapse in joint trial

Regulators from the United States and the United Kingdom will meet in a war room next week to see if they can cope with any possible fall-out when the next big bank topples over, the two countries said. Treasury Secretary Jack Lew and the UK’s Chancellor of the Exchequer, George Osborne, will run the first-ever joint exercise on Monday, simulating how they would prop up a large bank operating in both countries that has landed in trouble. Also taking part are Federal Reserve Chair Janet Yellen and Bank of England Governor Mark Carney, and the heads of a large number of other regulators, in a meeting hosted by the U.S. Federal Deposit Insurance Corporation.

There is no doubt that in 2008 the judgment taken by my predecessor and others was that banks … like the Royal Bank of Scotland and others were too big to fail.

George Osborne, U.K. Chancellor of the Exchequer

Six years after the financial crisis, politicians and regulators around the globe are keen to prove they have created rules that will allow them to let a large bank go under without spending billions in taxpayer dollars. They have forced banks to ramp up equity and debt capital buffers to protect taxpayers against losses, and have told them to write plans that lay out how they can go through ordinary bankruptcy. The plans are so-called living wills.

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