LONDON The world's top banks must spell out what would trigger capital raising and other steps to survive a crisis without needing taxpayer money, a global regulatory body said on Tuesday.
The Financial Stability Board (FSB) published final guidance for lenders and supervisors listing "triggers" that would force a bank to consider action to shore up its capital, such as writing down its bonds.
The FSB coordinates rules agreed by the top 20 economies (G20) to put an end to the "too big to fail" syndrome, so banks can be wound up without taxpayer money or the market meltdown seen when Lehman Brothers went bust nearly five years ago.
Compared with a draft version put out to consultation, the FSB has given banks a bit more leeway, saying that hitting a trigger should not automatically require rescue action.
The British Bankers' Association (BBA) had told the FSB that the word "trigger" implied the need for an automatic response.
Instead, banks will have to say in advance what happens once a trigger is hit, such as how the issue will be escalated to a top executive or the bank's board.
"Today's publication marks a further important step towards making the largest, most complex financial firms resolvable without taxpayer solvency support," said Paul Tucker, deputy governor of the Bank of England and chair of the FSB working group which wrote the guidance.
The G20 has already drawn up a list of 28 banks such as Goldman Sachs Group Inc (GS.N), Deutsche Bank AG (DBKGn.DE), HSBC Holdings Plc (HSBA.L) and Morgan Stanley (MS.N), who will have to comply with the latest guidance.
"The aim of triggers in recovery planning is to enable firms to maintain or restore financial strength and viability before regulatory authorities see the need to intervene or enforce recovery measures," the FSB's new guidance said.
"Firms should be required to provide supervisors and resolution authorities with an explanation of how the trigger calibrations were determined and an analysis that demonstrates that the triggers would be breached early enough to be effective."
Triggers can include a credit rating downgrade, a fall in capital ratios, a run on deposits or being asked to post more collateral to back trades.
However, the FSB shied away from a specific capital ratio trigger, as Swiss regulators have done with Credit Suisse Group AG CSGN.VX and UBS AG UBSN.VX, two banks also on the G20 list and subject to the new guidance.
Holders of Credit Suisse's bonds, for example, will bear losses if the banks' core capital ratio falls below 7 percent, a level some hawkish regulators feel is too low.
Barclays Plc (BARC.L), whose bonds are wiped out if its core equity capital ratio falls below 7 percent, had told the FSB that triggers should be determined by the bank itself, though subject to review by supervisors.
The guidance also gives flexibility for banks who may need several resolution plans to cover different operations across the world, though all plans show where bonds would be held for writing down.
The guidance fleshes out broad principles published by the FSB in November 2011.
(Additional reporting by Steve Slater; Editing by David Holmes)