The Financial Stability Board (FSB), a global banking regulator, has proposed new global rules to prevent multibillion-pound taxpayer bailouts of the banks that are considered ‘too big to fail’.
FSB said that the mega banks may be required to have total loss-absorbing capacity equivalent to as much as a quarter of their assets weighted for risk, with national regulators able to impose still-tougher standards.
Go deeper with GlobalData
The proposed minimum, however, doesn’t include equity used to make up other "regulatory applicable capital buffers" — the additional buffers certain systemic banks need to hold, FSB said.
This means large lenders may end up having to hold about 21-25% of their risk-weighted assets in instruments that can be "bailed in," according to the proposal.
The move could pressure banks to cut bonuses and dividends as they bolster their balance sheets further or push up the cost of products to consumers as they amass more capital.
In the wake of the financial crisis, world leaders asked the FSB to come up with proposals to prevent similar bailouts from happening in the future.
US Tariffs are shifting - will you react or anticipate?
Don’t let policy changes catch you off guard. Stay proactive with real-time data and expert analysis.
By GlobalDataThe proposed new rules, which are up for consultation, is expected to take effect in 2019.
Referring to the plans as a ‘watershed’ moment, Mark Carney, governor of Bank of England, said that it was unfair of taxpayers to bail out banks following the financial meltdown of 2008 and 2009.
Carney said that the new rules would ensure that bank shareholders, and lenders to banks such as bondholders, would be the first to bear the brunt of future losses if banks are unable to pay out of their own resources.
