Morgan Stanley Exec: 'Too Big to Fail' Problem Not Solved Due to Conflicting Agendas

Regulators "haven't addressed the root causes" that would prevent another crisis said Colm Kelleher, head of Morgan Stanley's institutional security business.

In a Bloomberg markets conference that looked at the financial system, five years after the collapse of Lehman Brothers, Kelleher said that huge banks were still a threat to the global economy.

"The biggest issue has not been resolved, and that is 'too big to fail'," he said, as regulators had conflicting rules on how to produce a mechanism to contain risky banks.

Kelleher added that the difference in opinion from a range of jurisdictions, such as in the US, UK and Europe, have the hampered progress of creating a uniformed process in handling failing banks.

Potential Solutions

The best solution to tackle 'too big to fail' is to dismantle those institutions, which echoes the way in which the Federal Deposit Insurance Corporation handles bank failures in the US, said Kelleher.

The way in which the US contains the fallout from collapsing banks has been praised elsewhere by key monetary officials.

Outgoing Bank of England deputy governor Paul Tucker said that the US offered a model for British regulators to handle the bankruptcies of 'too big to fail' institutions and were firmer in not wanting to save them with taxpayers' money.

"Were some of the biggest Wall Street firms to fail this week...I think it would be very hard for the President and US Treasury Secretary to persuade the Congress to commit to taxpayers' money," he said in a recent speech at the London School of Economics.

Meanwhile the European Union has also been reviewing polices on how to strengthen European banks.

The European Banking Authority found that banks in Europe have a €70bn capital black hole in their balance sheets.

In his last quarterly address to the European parliament, European Central Bank president Mario Draghi said he might consider another long-term refinancing operation if the eurozone crisis flared up again.