New bank rules proposed to end 'too big to fail'

Mon Nov 10, 2014 10:55am EST
 
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By Joshua Franklin and Huw Jones

BASEL Switzerland/LONDON (Reuters) - Banks may have to scrap dividends and rein in bonuses if they breach new rules designed to ensure that creditors rather than taxpayers pick up the bill when big lenders collapse.

Mark Carney, chairman of the Financial Stability Board and Bank of England governor, said the rules, proposed on Monday, marked a watershed in putting an end to taxpayer bailouts of banks considered too big to fail.

"Once implemented, these agreements will play important roles in enabling globally systemic banks to be resolved (wound down) without recourse to public subsidy and without disruption to the wider financial system," Carney said in a statement.

After the financial crisis in 2007-2009, governments had to spend billions of dollars of taxpayer money to rescue banks that ran into trouble and could have threatened the global financial system if allowed to go under.

Since then, regulators from the Group of 20 economies have been trying to find ways to prevent this happening again.

The plans envisage that global banks like Goldman Sachs (GS.N: Quote) and HSBC (HSBA.L: Quote) should have a buffer of bonds or equity equivalent to at least 16 to 20 percent of their risk-weighted assets, such as loans, from January 2019.

These bonds would be converted to equity to help shore up a stricken bank. The banks' total buffer would include the minimum mandatory core capital requirements banks must already hold to bolster their defences against future crises.

The new rule will apply to 30 banks the regulators have deemed to be globally "systemically important," though initially three from China on that list of 30 would be exempt.   Continued...

 
Bank of England Governor Mark Carney (L) and Germany's Bundesbank President Jens Weidmann attend a conference of central bankers hosted by the Bank of France in Paris November 7, 2014.   REUTERS/Charles Platiau