LONDON (Reuters) - Banks headquartered in Britain must find a net 4 billion pounds ($5.3 billion) to comply by 2022 with rules aimed at shielding taxpayers when lenders go bust, the Bank of England said on Monday.
Ten years after a financial crisis that forced UK taxpayers to inject billions of pounds into lenders like Royal Bank of Scotland and Lloyds, the BoE said the final pieces to a system for dealing with failing banks were being slotted into place.
This would ensure that even large banks can be wound down and were no longer “too big to fail” and hold taxpayers to ransom. BoE Deputy Governor Jon Cunliffe said the BoE does not run a “zero failure regime”.
“We don’t want a financial center that doesn’t take risks,” Cunliffe told reporters.
The ability of the City of London to remain a dominant global financial hub is coming into sharp focus as Britain prepares to leave the European Union in March, 2019.
The BoE was setting out more detailed proposals on the location within banking groups of mandatory “bail-in” debt that can be written down to replenish burnt-out capital in a crisis.
A gross 116 billion pounds of existing bank debt will have to be rebadged so that investors are fully aware it can be written down, it said.
The net shortfall for the bail-in debt known as “MREL” is much lower at 4 billion pounds, a figure the sector is expected to raise without difficulty.
In any given year, Britain’s gross domestic product would be 0.02 percent lower due to MREL requirements, but the upside is that “too big to fail” is ended, a bank’s critical functions continue even in a crisis, and taxpayers are shielded, the BoE said.
With interest rates low, UK banks like HSBC have already been rebadging millions of pounds in debt over the past year.
The BoE also made clear it would be willing to provide liquidity to temporarily support a bank being closed down, but only if the lender’s own resources are exhausted and access to private sector funding is disrupted.
Among the post-crisis reforms is a requirement for banks to write “living wills” or resolution plans that set out how they would cope with a crisis that was eating into their capital and cash reserves.
Cunliffe said the BoE would publish summaries of resolution plans of major UK banks from 2019, but he was still working out what the summaries should contain.
The rules on bail-in debt are based on EU law and are expected to be copied onto Britain’s statute book by Brexit.
The Bank has been conducting tests with regulators in the United States and the European Union to check that rules on winding down banks can work for cross-border lenders.
“International co-operating remains a critical component of ensuring banks with cross-border activities can be resolved,” Cunliffe said.
($1 = 0.7515 pounds)
Reporting by Huw Jones, editing by Louise Heavens and Ed Osmond