Never too big to fail

From a Financial Times editorial Tuesday arguing for policy reforms in the U.K. financial sector:

Second, banks must also be made safe-to-fail. … "Living wills” — pre-arranged plans for taking apart banks safely should they become insolvent — should be drawn up.

The goal should not be to restrict business, to cap the size of companies or to vindictively cut profit margins. Rather, it should be to prevent growth in the financial sector if it occurs in ways that rely on implicit public guarantees. Rewards should accrue only to people who take risk on their own account. The UK government must take action to create a genuinely private financial system.

Normally the FT’s editorials on government economic policy read like a manifesto for New Labour (pre-Gordon Brown), so it’s nice to see the newspaper discover its Libertarian side. Perhaps these ideas will catch on on this side of the “pond.”

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