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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 1 hour later)
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. Policymakers have reached a watershed 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 30 of the world’s biggest banks should ensure they hold enough capital to absorb any losses they incur, although experts questioned whether the new rules would solve the “too big to fail” problem. Mark Carney said new standards being published for 30 of the world’s biggest banks should ensure they hold enough capital to absorb any losses they incur, although experts questioned whether this would solve the “too big to fail” problem.
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 banks amass more capital. 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.
“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. “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 in Basel, Switzerland, speaking in his capacity as chairman of the Financial Stability Board (FSB).
Speaking in Basel, Switzerland, in his capacity as 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 from 2019. The new rules – published before the G20 leaders’ meeting in Brisbane, Australia this weekend – concern the amount of capital that must be held by 30 banks designated as “globally systemically important”. Known as G-Sibs, they include HSBC and Royal Bank of Scotland and will be required to comply with the rules from 2019.
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.”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 investors in their shares and bonds without the need for taxpayers to step in to prevent savers losing out from the collapse of a bank.The aim is for bank losses to be absorbed by investors in their shares and bonds without the need for taxpayers to step in to prevent savers losing out from the collapse of a bank.
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.” 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. 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.“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 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 FSB said banks will need to hold total loss-absorbing capital – known as TLAC – of 16-20% of their assets when adjusted for risk – or 25% in some circumstances. This capital includes a number of financial instruments such as shares and certain types of bonds that become equity in times of crisis. The FSB said banks would need to hold total loss-absorbing capital – known as TLAC – of 16-20% of their assets when adjusted for risk or 25% in some circumstances. This includes a number of financial instruments such as shares and certain types of bonds that become equity in times of crisis.
Carney also called for international co-operation on setting penalties for banks. “We need the fixes to bank conduct but we also need to ensure that, to the maximum extent possible, there is coordination across authorities, both in terms of identifying, investigating and punishing misconduct,” Carney said. As major banks prepare for record fines for rigging currency markets to be announced this week, Carney also called for international cooperation on setting penalties for banks. “We need the fixes to bank conduct but we also need to ensure that, to the maximum extent possible, there is coordination across authorities, both in terms of identifying, investigating and punishing misconduct,” he said.
Six major banks are under pressure to agree a settlement with the FCA this week for foreign exchange rigging and will need to make decisions in the coming hours about whether to sanction the penalties, possibly the the biggest fines ever levied. Six major banks are under pressure to agree a settlement with the FCA this week for foreign exchange rigging and will need to make decisions in the coming hours about whether to sanction the penalties, possibly the biggest fines ever levied.
The proposals on capital – 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 on capital were drawn up by the FSB after the G20 meeting in Saint Petersburg asked for ways to devise a system to avoid future taxpayer bailouts. Anthony Browne, chief executive of the British Bankers’ Association, said the proposals were complex and that more work needed 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.”
Anthony Browne, chief executive of the British Bankers’ Association, said the proposals were complex and that more work needed 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.”