Global banks receive 'too-big-to-fail' rules


The world's largest banks gained an insight Monday into how much capital they will need to hold in order to buffer themselves from future financial crises.

The Swiss-based Financial Stability Board (FSB) comprises policymakers from central banks and financial institutions of the G-20 group of leading nations. On Monday it issued a new set of proposals to governments on what banks should hold with their total loss-absorbing capacity (TLAC) requirements.

The Federal Reserve building in Washington, D.C.
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The TLAC is a crisis fund consisting of capital that can be written down or converted into equity if a bank fails. This would essentially hit creditors of a bank, rather than taxpayers - which footed the bill in many countries following the financial crash of 2008.

Mark Carney, the chair of the FSB and also the governor of the Bank of England, said the new plans were a robust global standard that would mean important banks could now fail without placing the rest of the financial system or public at risk of loss.

"This new standard, which will be implemented in all FSB jurisdictions, is an essential element for ending too-big-to-fail for banks," he said in a press release Monday.

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"The economic impact assessments conducted as part of the detailed policy work shows that the economic benefits of the final standard far outweigh the cost."

The new proposals had been fully signposted but banks weren't totally aware of the exact amount they were expected to hold. The FSB said Monday that they would have to hold a minimum of at least 16 percent of its own risk-weighted assets for future crises as from 1 January 2019. It will need at least 18 percent as from 1 January 2022, it added.

The rules would apply to large banks that it considers "systemically important" which include lenders like HSBC. Earlier proposals had spoken of a 20 percent buffer for a group's consolidated risk-weighted assets.