Exclusive: G20 signals flexibility on big bank failures - sources

Fri Sep 5, 2014 11:38am EDT
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By Huw Jones

LONDON (Reuters) - Regulators trying to end the problem of "too big to fail" banks are moving closer to a landmark deal that will give large banks more flexibility about how to deal with losses when they go bust and cut the amount of fresh bonds they will need to issue.

Global regulators, led by Bank of England governor Mark Carney, want to agree a set of rules that would force bondholders to cover the losses that arise when a major bank fails, to avoid a repeat of the last financial crisis when taxpayers were forced to foot the bill.

Different banking models and legal systems have complicated the talks and in order to try and secure a deal by the next meeting of the Group of 20 leading economies in Brisbane in November, regulators have agreed a more flexible approach, according to two sources familiar with the draft proposals.

Under the new plan, major banks including HSBC, Industrial and Commercial Bank of China, Mitsubishi UFJ and Citigroup, will be able to count their surplus capital, including shares, earnings and some types of bonds, towards new buffers which are meant to be tapped when a bank gets into trouble.

The measure will apply to the 29 banks on the Financial Stability Board's "too big to fail" list. These banks already have to hold more capital than smaller banks by 2019.

Initially, banks expected they would have to issue new "bail in" bonds for the whole of the buffers regardless of whether they had surplus capital.

The new proposal means fewer bonds will now have to be issued by those banks among the 29 whose capital buffers are already well above the minimum requirement.

The new proposals will be seen as a rebuff to U.S. supervisors who wanted the buffer to include only subordinated debt and not to be mixed up with other bank safety cushions.   Continued...

Bank of England governor and Financial Stability Board Chairman Mark Carney (C) with Jeremy Harrison and Svein Andresen (R) deliver a Financial Stability Board media briefing at the Bank of England in London March 31, 2014.  REUTERS/Jonathan Brady/Pool