Tue, Nov 10, 2015 - Page 15 News List

G20 to bring end to ‘too big to fail’ phenomenon

Reuters, LONDON

Global regulators set out their “final tools” yesterday for ending the phenomenon of “too big to fail” banks, seeking to draw a line under a period of intensive rule making after a financial crisis that tarnished the sector and weighed heavily on taxpayers.

Mark Carney, chairman of the Financial Stability Board (FSB), which coordinates regulation across the G20 to plug gaps highlighted by the 2007-2009 financial crisis, said many of the key reforms have been implemented decisively and promptly.

“As a consequence, the financing capacity to the real economy is being rebuilt and significant retrenchment from international activity has been avoided,” Carney said in a letter to G20 leaders ahead of their summit next week.

The G20 tasked the FSB in 2009 with introducing a welter of reforms from increasing bank capital requirements to shining a light on derivatives markets and curbing bankers’ bonuses.

Carney, who is also governor of the Bank of England, said the board has now finalized the tools needed to wind down “too big to fail” banks in an orderly way if necessary, seen as the last major financial reform of the crisis.

G20 leaders’ meeting next week in Turkey would be asked to endorse a reform that requires the world’s 30 top banks to issue a buffer of bonds by 2019 that can be written down to raise funds equivalent to 18 percent of risk-weighted assets, if the lender goes bust.

The buffer, known as total loss-absorbing capacity or TLAC, is in addition to the minimum core capital requirements a bank must already hold.

The aim is to allow a big bank to fail without creating the kind of mayhem in markets seen after Lehman Brothers bank went bust in 2008.

“Countries must now put in place the legislative and regulatory frameworks for these tools to be used,” Carney said.

Banks had warned that the new capital rules being rolled out made it too expensive in some cases to keep markets as liquid as they were before the crisis by offering to buy and sell bonds at any time.

The FSB has completed its first review of all the rules that have been introduced and said it has “not found evidence of significant unintended consequences to date.”

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