Central bank forum the Bank for International Settlements laid out a blueprint on Sunday for how to recapitalize a major lender in the event of a failure, seeking to avoid the sort of chaotic ad hoc rescues seen since 2008's financial crash.
Authorities have been grappling since the collapse of U.S. investment bank Lehman Brothers five years ago with the question of how banks regarded as systemically important - or too big to fail (TBTF) - can be recapitalized without causing panic and without needing taxpayer cash.
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The BIS paper released on Sunday said its plan would allow banks to be recapitalised quickly and easily and would allow authorities to give an unequivocal guarantee that insured depositors would not lose savings.
"(It) proposes a simple recapitalization mechanism that is consistent with the rights of creditors and enables recapitalization of a TBTF bank over a weekend without the use of taxpayers' money," the paper said.
Under the template laid out by BIS, which is termed a creditor-funded recapitalisation mechanism, the bank would undergo a forced recapitalisation by its creditors when it reaches the point of failure.
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