Paul Tucker, Deputy Governor of the Bank of England, today said it was considering forcing banks to show that they can produce daily details of their positions in derivatives — often seen as the most toxic of their investments.

In a speech at a conference on bank crisis management in Brussels today, Mr Tucker said that the Bank was looking at whether to mimic new US rules that already apply to banks.

He said that the Federal Deposit Insurance Corporation, which guarantees the first $150,000 (£90,000) of customer deposits in US banks, "now requires troubled banks to demonstrate that they could report each day the relevant details of derivative portfolios. The Bank of England plans to consider whether or not something like that might be warranted in the UK."

Since February, the Bank has taken on the extra role of "Special Resolution Authority" with powers to resolve or force the wind up, sale or nationalisation of distressed banks.

Mr Tucker said: "This new responsibility has given us an interesting vantage point on the preconditions for effective resolution. In the first place, let me tell you that it is very information-intensive. It requires a lot of detail on how a bank’s business is structured and run. And that information needs to be available at an early stage."

Investment banks' ballooning trade in unregulated derivatives contracts has been seen as one of the reasons for the credit crisis last year which led to the Government bailout of both Lloyds Banking Group and Royal Bank of Scotland.

Warren Buffett, the billionaire US investor behind Berkshire Hathaway, famously described derivatives in 2003 as "financial weapons of mass destruction" that could harm not only their buyers and sellers, but the whole economic system.

In his speech today, Mr Tucker also praised the emerging trend for troubled banks to issue "CoCo" security, or "contingent capital", effectively bonds which convert into bank equity should the bank's capital ratios fall below a pre-determined level.

Lloyds Banking Group has pioneered the use of CoC's with a recent issue of £7 billon of debt.

Mr Tucker said that contingent capital was a better form of protection than the old-style hybrid debt that banks have been issuing up to now which helped them boost their capital reserves and so borrow more. By contrast contingent capital "is, in effect, a form of catastrophe insurance provided by the private sector," he said, adding: "If CoCos could form a material part of recovery plans, the landscape might just be transformed".

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