EU law key to ending 'too big to fail' banks: BoE's Tucker

Mon May 20, 2013 7:13am EDT
 
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By Huw Jones and Claire Davenport

LONDON/STRASBOURG, France (Reuters) - A European Union law up for a vote on Monday will only fully shield taxpayers from bailing out troubled banks if there is a global framework as well, a top UK regulator said on Monday.

Bank of England Deputy Governor Paul Tucker said the EU law on bank recovery and resolution would be a milestone towards a global system and help convince markets that governments were no longer willing to rescue "too big to fail" lenders.

Since governments had to shore up banks during the 2007-09 financial crisis, regulators have wanted to stop markets assuming big banks would not be allowed to go out of business.

The European Parliament's economic affairs committee holds a first vote in Strasbourg, France at 1830 GMT. It has joint say with EU states on the law that gives regulators powers to impose losses on creditors, replace management and take other steps when a bank gets into trouble.

In a speech in the Netherlands, Tucker said there had been "marked convergence" recently on a global approach to winding down banks which typically have operations in many countries.

But more political impetus was needed as it would still be a "nightmare" to wind down a big bank, he added.

The EU law will have powers to force big banks to hold a cushion of bonds that can be converted into equity to shore itself up without taxpayer cash. Tucker said a discussion on such a cushion at the global level was still needed.

This "loss-absorbing" cushion should be equivalent to the amount of capital a lender holds in its capital buffer with an added margin for safety, he said.   Continued...

 
The Deputy Governor of the Bank of England, Paul Tucker, addresses the International Association of Deposit Insurers Annual Conference in London October 25, 2012. REUTERS/Neil Hall