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Mark Carney hails new deal for ‘too big to fail’ banks Mark Carney hails new deal for ‘too big to fail’ banks
(about 4 hours later)
The governor of the Bank of England has said that policymakers had achieved a “watershed moment” in their attempts to avoid a repeat of the taxpayer bailouts of the banking system six years ago. Policymakers have achieved a “watershed moment” in their attempts to avoid a repeat of the multibillion-pound taxpayer bailouts of the banking system six years ago, the governor of the Bank of England said on Monday.
Mark Carney said new standards being published for banks should ensure they hold enough capital to absorb losses they incur and minimise the impact on financial stability and the need for international bailouts. Mark Carney said new standards being published for 30 of the world’s biggest banks should ensure they hold enough capital to absorb losses they incur, although experts questioned whether this would be a solution to the problem faced by governments since 2008. The move could pressure banks to cut bonuses and dividends as they bolster their balance sheets further.
“Once implemented, these agreements will play important roles in enabling globally systemic banks to be resolved without recourse to public subsidy and without disruption to the wider financial system,” he said on Monday. “Once implemented, these agreements will play important roles in enabling globally systemic banks to be resolved without recourse to public subsidy and without disruption to the wider financial system,” Carney said.
Speaking in Basel, Switzerland, in his capacity of chairman of the Financial Stability Board (FSB), Carney was referring to new rules about the amount of capital that must be held by 30 banks designated as “globally systemically important”. Known as G-Sibs, these banks include HSBC and Royal Bank of Scotland and will be required to conform with a new measure of capital intended to cover all their losses in the future. To amass more capital, banks could cut bonuses to staff, reduce dividends to shareholders, issue bonds to raise finance or reduce the risks they take.
Carney said: “Agreement on proposals for a common international standard on total loss-absorbing capacity for G-Sibs is a watershed in ending ‘too big to fail’ for banks”. Speaking in Basel, Switzerland, in his capacity of chairman of the Financial Stability Board (FSB), Carney was referring to new rules about the amount of capital that must be held by 30 banks designated as “globally systemically important”. Known as G-Sibs, these banks include HSBC and Royal Bank of Scotland and will be required to conform with a new set of rules stipulating how much capital they should hold to cover all their losses in the future.
Carney said: “Agreement on proposals for a common international standard on total loss-absorbing capacity for G-Sibs is a watershed in ending ‘too big to fail’ for banks.”
The aim is for bank losses to be absorbed by their investors in their shares and bonds and not by taxpayers stepping in to prevent savers losing out.
But David Ereira, banking partner at law firm Linklaters, said: “The FSB proposal is an important step in solving too big to fail. However, on its own it is insufficient to deal with the issue.”
The UK used £65bn of taxpayers’ cash to prop up RBS and Lloyds Banking Group – and billions more to keep the financial system afloat – during the financial crisis. The government has yet to sell off any of its stake in RBS though it has reduced its shareholding in Lloyds.
“Let’s face it, the system we’ve had up until now has been totally unfair,” Carney told the BBC.
“The banks and their shareholders and their creditors got the benefit when things went well. But when they went wrong the British public and subsequent generations picked up the bill – and that’s going to end.”
The proposals, being published before this weekend’s meeting in Brisbane, Australia, were drawn up by the FSB after the G20 meeting in St Petersburg asked for ways to devise a system to avoid future taxpayer bailouts.The proposals, being published before this weekend’s meeting in Brisbane, Australia, were drawn up by the FSB after the G20 meeting in St Petersburg asked for ways to devise a system to avoid future taxpayer bailouts.
The UK used £65bn of taxpayers’ cash to prop up RBS and Lloyds Banking Group and billions more to keep the financial system afloat during the financial crisis. The government has yet to sell off any of its stake in RBS though it has reduced its shareholding in Lloyds. The FSB said the new standard for total loss-absorbing capital – known as TLAC – should “provide home and host authorities with confidence that G-Sibs have sufficient capacity to absorb losses, both before and during resolution, and enable resolution authorities to implement a resolution strategy that minimises any impact on financial stability and ensures the continuity of critical economic function”.
The FSB said the new standard for total loss absorbing capital – known as TLAC – should “provide home and host authorities with confidence that G-Sibs have sufficient capacity to absorb losses, both before and during resolution, and enable resolution authorities to implement a resolution strategy that minimises any impact on financial stability and ensures the continuity of critical economic function”. The level which has been set – and will come into force in 2019 assuming it is adopted – is for banks to hold TLAC of 16-20% of their assets when adjusted for risk. This TLAC includes a number of financial instruments such as shares and certain types of bonds.
The level which has been set – and will come into force in 2019 assuming it is adopted – is for banks to hold TLAC of 16-20% of their assets when adjusted for risk. Anthony Browne, chief executive of the British Bankers’ Association, said the proposals were complex and that more work needs to be done before putting them into practice. But, he said: “The banking industry strongly supports this work, which is a really important step in ending ‘too big to fail’ and ensuring that never again will taxpayers have to step in to bail out banks.”