Europe unveils sweeping plans to govern reckless banks
The plans allow oversight bodies to place a "permanent presence" of inspectors in the offices of suspect banks, adopting a scheme already pioneered by Spain’s central bank. There will be annual stress tests, geared to shocks of "low probability but high impact".
Regulators will be able to order bank boards to fire directors, desist from any activity, reduce leverage, sell off assets, or restructure debt.
In extreme cases, they will have pre-emptive powers to take over the entire bank and decapitate top management, perhaps when Tier I capital ratios fall below an fixed level. Stronger banks will be required to help cover the costs of failure by weaker peers, creating a further buffer between the financial industry and the taxpayer.