David Prosser: Making banking just a little bit safer

Outlook Slowly, the net is tightening. The discussion paper published by the Financial Services Authority yesterday on banking reform sets out how large banks will have to put "living wills" in place by the middle of next year. The premise is that banks should have to set out in advance how they could be wound down, in the event of a crisis, with the minimum possible impact on financial stability and the wide economy.

The FSA's initiative is part of a global drive on living wills, so Britain's banks should not feel singled out for unwanted regulatory attention. Nevertheless, taken in conjunction with the forthcoming proposals for banking reform from the Independent Commission on Banking, these rules make it much more likely systemically important institutions in the City will have to contemplate a greater degree of restructuring than seemed likely a few months back.

One effect of the FSA's proposals, by the way, could be to substantially increase the tax bills of some of our largest banks. Their complex structures have partly been driven by the desire to minimise tax bills across a number of jurisdictions – these networks may now have to be unwound.