Date
12 December 2017
Mark Carney says the proposed rules are a watershed in putting an end to taxpayer bailouts of big banks. Photo: Bloomberg
Mark Carney says the proposed rules are a watershed in putting an end to taxpayer bailouts of big banks. Photo: Bloomberg

Proposed rules could end taxpayer bailouts of big banks

New rules proposed by central banks and regulators could end taxpayer bailouts of banks considered too big to fail.

Banks may have to scrap dividends and rein in bonuses if they breach the rules, designed to ensure that creditors rather than taxpayers pick up the bill when big lenders collapse, Reuters reported Tuesday.

Mark Carney, chairman of the international Financial Stability Board (FSB) and governor of the Bank of England, said the rules, proposed on Monday, “will play important roles in enabling globally systemic banks to be resolved [wound down] without recourse to public subsidy and without disruption to the wider financial system”.

During the global financial crisis that started in 2008, governments spent billions of dollars of taxpayer money to prevent bank bankruptcies that could have threatened the world’s financial system.

Since then, regulators from the Group of 20 economies have been trying to find ways to prevent this from happening again.

The rules would require global banks like Goldman Sachs and HSBC to have a buffer of bonds or equity equivalent to at least 16 percent to 20 percent of their risk-weighted assets, such as loans, from January 2019.

The buffer would include the minimum core capital banks must already hold to protect them against future crises.

The new rules would apply to 30 banks the regulators have deemed to be “systemically important” globally, though three of them from China would be exempt initially.

G20 leaders are expected to back the proposal later this week in Australia. It is open to public consultation until Feb. 2.

Most of the banks would need to sell more bonds to comply with the new rules, the FSB, based in Basel, Switzerland, said. 

Some of the buffer must be held at major overseas subsidiaries to reassure regulators outside a bank’s home country. 

Analysts at Citigroup estimated the new rules could cost European banks up to 3 percent of profits in 2016.

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CG/FL

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