PARIS (Reuters) - Governments will reach an agreement next year on the pecking order for shareholders and bond investors to take losses when a bank fails, Mark Carney chairman of the UK’s Financial Stability Board and head of the central bank, said on Friday.
Carney said the new regulatory framework currently being hammered out had to be designed to ensure financial markets could handle the collapse of a bank.
“It forces us, and we will do this next year, to come to an agreement on the capital structures that ensure bank shareholders, certain classes of debt holders are next in line well in front of tax payers,” Carney told a conference at the French Finance Ministry.
“We have to design those in a way (so) that critical activities of the institutions can continue after the failure,” he added.
Governments in Britain, Europe and the United States had to shore up major banks with billions of dollars of taxpayer money during the 2007-2009 financial crisis.
Carney, who is governor of the Bank of England, said regulators needed in particular to wrap up work on so-called too-big-to-fail banks, which the United States and Europe have clashed over in the past.
“An essential element of that reform will be to agree the amount and location structure of the bail-in-able debt for systemic institutions,” he said. “This will be the key to unlocking this issue.”
Reporting by Leigh Thomas; Editing by Susan Fenton