* FSB's Carney: Tackling too big to fail banks is
* G20 to debate mandatory extra loss absorption at big banks
By Huw Jones
LONDON, Sept 2 The world's banking system risks
fragmentation that could hurt growth if countries cannot settle
their differences over how to handle big banks that run into
trouble, a top policymaker said on Monday.
Mark Carney, chairman of the Financial Stability Board
(FSB), is due to report to leaders of the G20 group of economies
this week on the slow progress so far in tackling the last of
the big post-crisis reforms: making sure banks are not too big
The United States and Europe have clashed on their different
preferences for how to avoid future taxpayer bank bailouts.
Carney, without referring to individual countries, said he
would stress the need for the G20 to cooperate.
"The fragmentation of the international financial system
that results from such nationally focused policies could reduce
global growth by putting up barriers to the efficient allocation
of capital and liquidity," Carney told a news conference.
Taxpayers had to shore up lenders in Britain, the United
States and elsewhere during the 2007-09 crisis because there was
no fail-safe way of winding them down without the market mayhem
seen after Lehman Brothers was allowed to fail in September
Carney, who is also Bank of England governor, will update
G20 leaders at a summit in Russia on Thursday and Friday,
setting a 2014 deadline for finalising the changes needed.
"A core message from the FSB to the summit is that what the
G20 does ultimately determines the openness of not just the
global financial system but the global trading system," he said.
Bankers say privately that solving too-big-to-fail will be
hard but that success would make other post-crisis reforms
almost irrelevant as lenders would not act recklessly again in
the knowledge there will be no more public rescues.
The slow progress has prompted some countries to take
unilateral measures as trust among supervisors over banks is
still not strong enough.
The European Union is annoyed with U.S. plans to impose
heavier capital requirements on foreign banks as a safeguard to
keep its taxpayers off the hook if they get into trouble.
Britain has also been criticised for putting pressure on
foreign banks to become fully fledged subsidiaries and thus
required to hold a pot of capital and cash locally.
Carney said nationally focused policies could reduce global
growth by hindering efficient allocation of capital and
"Reforms that strengthen the resilience of the national and
global system can also prevent regulatory arbitrage, reduce
contagion and reduce incentives to ring-fence national systems,"
The G20 has already agreed that 28 of the biggest banks in
the world, including Goldman Sachs, HSBC and
Deutsche Bank, must hold more capital than their
smaller, more domestically focused peers from 2016.
The G20 will now debate if the biggest banks should also be
required to have a minimum amount of so-called loss absorption
capacity like bonds that could be tapped if they fail.
Carney said most of the big banks could hold that cushion at
the group level but critics say this will raise issues of trust
in other countries where the bank has branches.
He will try to persuade leaders to allow their regulators to
sign agreements with counterparts in other countries so that
when a bank is in trouble, there is a clear blueprint on how it
will be handled to avoid uncertainty and taxpayer exposure.
The FSB will prepare proposals for consideration by the end
of 2014 on the nature, amount, location within the group
structure and possible disclosure of loss-absorbing capacity.
Carney said developing a mindset of cooperation among
supervisors was crucial: "This is new territory. The work on too
big to fail brings that to the fore in many respects."