Bank of England sets new rules to end bank bailouts

Tue Nov 8, 2016 5:06am EST
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LONDON, (Reuters) - - The Bank of England said on Tuesday that Britain's lenders would be given an extra two years until 2022 to build up sufficient funds to ensure they do not need to rely on taxpayer bailouts if they go under.

The central bank also said it would help smaller banks and building societies by raising the size they can reach before more onerous capital rules kick in.

The BoE's statement on Tuesday follows a consultation it started in December 2015 which it said aimed to define one of the final pieces in the jigsaw to avoid a repeat of the 2008 bailouts of RBS (RBS.L: Quote) and Lloyds (LLOY.L: Quote), which cost the British public 115 billion pounds up front.

"This policy is a significant milestone on the journey to end 'too big to fail' in the UK," BoE Governor Mark Carney said. "(It) will ensure that banks that provide essential economic functions hold sufficient resources to be resolved in an orderly way, without recourse to public funds."

However, the plan which the BoE presented on Tuesday was less onerous than its original suggestions

Originally the BoE said the rule should apply to all banks with more than 40,000 accounts. On Tuesday, it amended the scope to say banks operating up to 80,000 accounts could be eligible for lighter treatment.

Moreover, those banks which come under the scope of the new rule will have an extra two years until 2022 to fully comply.

The BoE set interim targets for 2020, which will be reviewed to see if Britain's departure from the European Union has had any impact on regulation more broadly.

The total shortfall across the banking sector at the end of last December was a net 20 billion pounds, down from 27 billion a year earlier. This does not take into account the $75 billion gross in bonds issued so far in 2016.       Continued...

A clock strikes midday in front of the Bank of England in the City of London, Britain, November 3, 2016. REUTERS/Peter Nicholls