Axel Weber, policy maker at the European Central Bank said that banks should be allowed fold in order to avoid complacency and ‘moral hazard’ among bankers.
Speaking at the opening of Euro Finance Week, he said, “The relevant instrument in this context is a restructuring mechanism that allows for a wind-down of systemically-relevant banks without overburdening markets.”
During his speech, Weber also supported the idea of issuing special bonds which would convert to equity in the event of a crisis. He said these were one option for large banks that play a role in global finance.
Calling for a more stable banking system, the German banker stressed the need for stricter rules to ensure long term growth.
Euro Finance Week will be attended by many bank officials who are already wary of more regulation. Bankers and officials are expected to clash throughout the week over this issue.
Commenting on capital requirements, the Bundesbank president said he does not believe banks must reduce their lending to businesses in order to meet new requirements.