LONDON — The Bank of England and Federal Deposit Insurance Corporation announced Friday that they would increase their cooperation in dealing with distressed banks that operate in the U.S. and U.K.

In a joint news release, the bodies said Governor Mervyn King and FDIC Chairman Sheila Bair had signed a memorandum of understanding, which underlined the need for the FDIC and BOE to work closely together with other authorities in the U.S. and the U.K., with the aim of maintaining confidence and systemic stability.

"The recent financial crisis demonstrates that greater international coordination among resolution authorities as well as resolution processes capable of resolving the largest, most complex financial institutions are necessary to protect the public," Bair said in a statement.

She added that this would mark an important step toward implementing the recommendations of the Basel Committee's Cross Border Resolution Group and would support the work of the Financial Stability Board's Crisis Management Working Group.

Cross-border crisis-management groups, set up by the FSB, are in the process of meeting for each of the roughly 25 most complex, large banks, tasked with developing recovery and resolution plans by mid-2010 to deal with these institutions if they get into trouble.

But there is widespread recognition that the crisis-management efforts face enormous challenges and that previous attempts to manage international banking stresses have run aground.

"It makes good sense to develop close relationships with other resolution authorities so that the toolkit and powers now available to us can be applied effectively to large and complex cross-border banks," King said.

The U.K. banking act, passed last February, put into place a Special Resolution Regime, with a permanent framework for dealing with distressed banks and building societies, which gives the U.K. central bank a new role of deciding which resolution tools to use.

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