London's investment banks yesterday responded warily to government plans to extend the requirement to create a "living will" to them.
The Association for Financial Markets in Europe – the successor to the London Investment Banking Association – said yesterday that the Government needed to make clear which companies would be affected by the plans.
John Serocold, the association's managing director, said: "We need to be clear whether this applies to all firms or just to the large, complex and systemic businesses. Engagement from investment firm is also crucial to ensure that the proposals are proportionate and effective in practice."
The plans would require affected banks to set aside a pool of money to enable staff to remain employed "on notice" after the failure of a bank to ensure an orderly wind-up.
That contrasts with the situation at Lehman Brothers, which collapsed overnight and where there was no cash in London to pay any staff.
In a speech yesterday, the City minister, Paul Myners, urged London's financial community to back the plans.
In addition to "insolvency proof" contracts for staff, he said clients would be given quicker access to money held "in trust" by investment banks, and counterparties to trades would be offered more protection.
Lord Myners also sought to offer words of support for the financial sector, which was infuriated by the decision by his boss to impose a 50 per cent "supertax" on banks' bonus pools. This has led at least one firm, money broker Tullett Prebon, to say it would help its staff relocate out of London.
Lord Myners said: "We know that the City has the power to generate jobs and wealth; its successes – and, as we have learned, failures – are intimately bound up with the wider economy.
"The recovery of our financial services sector will, once again, drive growth, employment and prosperity. The banking system is critical for lending and saving; for homeowners and pensioners; for innovative start-ups and businesses; for employment and security. Economic growth, and the benefits that come from it, require an effective and responsible City."
He insisted that his consultation on "living wills" for investment banks had come about as a result of these banks working in tandem with the Financial Services Authority.
Lord Myners continued: "It is vital that an investment firm's systems remain operational at the time of failure; we have set out proposals which include requirements for investment firms to make plans for the actions they would take in the event of their own failure.
"This may sound a touch morbid, but it is essential to investor confidence – investing in London should not be an all-or-nothing gamble, and these measures will allow investors to make calculated determinations in a secure environment."
"As I have said before, the best way to prepare for a potential crisis is to assume that you may be at the epicentre of one."