Plans to de-risk 'too-big-to-fail' banks face hurdles in Europe, Asia

Fri May 16, 2014 12:31pm EDT
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By Huw Jones

LONDON (Reuters) - Global plans to prevent taxpayers from having to pay for big bank failures are at risk because banking supervisors in Europe and Asia do not fully support some of the proposals aimed at drawing a line under the 2007-2008 financial crisis.

Governments have paid out billions of taxpayer dollars to bail out large banks in trouble because of fears that the fallout from a big collapse would be too damaging.

But leaders of the world's major economies - the G20 - want to put an end to the "too big to fail" phenomenon. They want the world's biggest 29 banks to hold enough capital and bonds that in a crisis they would not have to be rescued by governments.

The G20's regulatory arm, the Financial Stability Board (FSB), wants them all to hold a common "cushion" of bonds that can be converted to equity to help rescue or "bail in" the bank if all other capital has been burnt through.

But there is resistance among supervisors in Europe and Asia to banks having to hold what would be another layer of capital.

FSB Chairman Mark Carney wants a draft rule on the "bail in" bonds by November, when G20 leaders meet in Australia so they can move on from crisis clean-up to growth promotion. Supporters of a global standard say it is needed because big banks operate across borders.

"It's very much in the interest of the industry to find a solution to this because we want to get a consensus on the view that too big to fail has been eliminated," David Schraa, regulatory counsel at the Institute of International Finance, a global banking lobby in Washington, said.

But bankers, bank industry associations and regulators familiar with work on the new "bail in" rule say Asian bank supervisors argue that big banks in the region have enough capital already and do not need the additional cushion or "debt shield." They did not want to specify which Asian countries.   Continued...

Bank of England governor and Financial Stability Board Chairman Mark Carney delivers a Financial Stability Board media briefing at the Bank of England in London March 31, 2014. REUTERS/Jonathan Brady/Pool