Few people expect a large bank to carry enough capital to meet
every conceivable financial and operational catastrophe - except
perhaps Daniel Zuberbühler, director of the Swiss Federal Banking
Commission. In recognition of this, regulators and bankers are
wrestling with the question of who should provide liquidity if a
"too-big-to-fail" bank gets into trouble and threatens dislocation
of the financial system?
The possible choices are: central banks as lenders of last resort;
insurance; or mutual insurance by banks themselves.
Some Germans believe they have a model that combines the first and
the last of these. In 1974, after the Herstatt crisis which
dislocated international currency markets and threatened bank
liquidity in Germany, the Germans set up their own
Liquiditäts-Konsortialbank - Liko-Bank for short.
It is owned 30% by the Bundesbank and 70% by individual members of
the various German bank associations. It has capital and reserves
of e224 million with total callable liquidity...
