| LONDON, July 7
LONDON, July 7 Details of a new buffer of bonds
to shield taxpayers from having to rescue a big bank won't
become clear for at least a year or more, a global banking
regulator said on Monday.
Lenders like Goldman Sachs, Deutsche Bank and HSBC are
waiting to see how big the new cushion of bonds must be. The
cushion represents an added cost and the wait will prolong
regulatory uncertainty that is casting a cloud over valuations
in the banking sector.
The bonds, known as gone concern loss absorbing capacity, or
GLAC, would be tapped to avoid a government ending up owning a
collapsed lender, as occurred during the 2007-09 financial
A deal on GLAC is seen as key to ending banks considered too
big to fail -- lenders which have hitherto been considered too
large to be allowed to go under for fear of wreaking mayhem in
markets like the collapse of Lehman Brothers did in 2008.
Leaders of the Group of 20 economies (G20) meet in Australia
in November to agree the new GLAC rules, but Stefan Ingves,
governor of the Swedish central bank, said technical details
such as size won't be ready until 2015 or beyond.
"It will take probably a year, more than that to come up a
GLAC definition," Ingves told students at the London School of
He chairs the Basel Committee, a group of banking
supervisors from G20 and other countries, which will flesh out
the finer details of the new rules.
Discussion was still under way on how to define GLAC,
whether it should be based on a bank's risk-weighted assets,
total assets or liabilities, he said.
"First there is a need for a global agreement at the
political level," Ingves said. "It's one thing to come to an
agreement, it's a different thing to do all the technical work."
ZERO RISK SAFE FOR NOW
Ingves also said that any attempts to change a rule that
allows banks to set aside no capital in case government bonds on
their books turn sour would take years given the political
Governments don't want their debt to be seen as risky and
put off investors, even though the euro zone debt crisis showed
they were not risk free.
Ingves said there were always elements of national interest
in negotiations on regulation which produce "oddities".
"The problem will take many years for the committee to look
into that issue again. ... This is not a 100 percent actuarial
approach to risk. There are other elements to it as well but
that is basically what it takes to get us all to agreement,"
Some regulators want to tighten Basel's rules on how banks
calculate their core capital buffers by using their own models
to add up the risks their holdings present.
Ingves accepted that this risk-weighting system has lost
credibility and that quite an effort was needed to correct it,
otherwise countries will drift to other ways of determining how
much capital banks should hold.
"We will discuss, probably for many years to come, how to
deal with that issue," Ingves said.
Solutions include tougher curbs on banks' calculations or
floors on capital requirements.
"It's too early to tell which way we will go," Ingves said.
(Reporting by Huw Jones; Editing by Leslie Adler)