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Rules to end “too big to fail” banks

Monday, November 10, 2014 - 01:31

The world's biggest banks should hold a buffer of bonds in case of a collapse, according to a global regulator body. As Ivor Bennett reports the proposals are the last major piece of banking reform designed to make sure no lender is ever ''too big to fail.''

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Governments spent billions bailing them out. Banks that were simply "too big too fail". That gilded status though may not last. Regulators unveiling new rules to prevent taxpayers picking up the bill. SOUNDBITE (English) IVOR BENNETT, REUTERS, SAYING: "Propping up Britain's failing banks cost the government 65 billion pounds during the financial crisis. Most of the money went here, the Royal Bank of Scotland, which is still 80 percent owned by the taxpayer. Under the new rules, a bank in trouble would have to fend for itself." Banks would have to hold a buffer of bonds equivalent to 16-20 percent of their risk-weighted assets. In the case of collapse, these would be converted to equity for what's called a 'bail in'. The proposal's been put forward by the Financial Stability Board. A global regulator chaired by Bank of England Governor Mark Carney. Seen as the last major piece of banking reform, it will apply to 30 of the biggest lenders. Those from emerging markets will be exempt, initially. Putting the rest at a disadvantage, says Reuters Breakingviews Editor George Hay. SOUNDBITE (English) GEORGE HAY, EUROPEAN FINANCIAL EDITOR, REUTERS BREAKINGVIEWS, SAYING: "They will now be competing in different parts of the world that don't necessarily have to do that. and that will raise a big issue for them as to whether they want to keep on being as comprehensive as they currently are." For now, banks still have some breathing space. The rule won't be finalised until next year. If it is adopted, it'll come into force in 2019.

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Rules to end “too big to fail” banks

Monday, November 10, 2014 - 01:31