Compulsory insurance against systemic failure an option
A Treasury report has listed banks being forced to take out commercial insurance against failures as way of avoiding future government bank bail outs.
The Treasury said its report, Risk, reward and responsibility: the financial sector and society, is a contribution to the international debate on the future of the global financial sector.
The capital insurance option is listed as:
“Under this proposal, the insurer would receive a premium for agreeing to provide an amount of capital to the bank in case of systemic crisis. The insurer would be required to hold the full insured amount, to be released back to the insurer once the policy matures.
“The policy would pay out upon the occurrence of a ‘banking systemic event’, for which the trigger would be some measure of aggregate write-offs of major financial institutions over a year-long period.
“Long-term policies would be hard to price and therefore a number of overlapping short-term policies maturing at different dates are proposed.”
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