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New global rules to prevent banks that are "too big to fail" from being bailed
out by taxpayers have been proposed.
The rules, created by the Financial Stability Board (FSB), a global regulator,
will require big banks to hold much more money against losses.
Mark Carney, FSB chairman and governor of the Bank of England, said the plans
were a "watershed" moment.
He said it had been "totally unfair" for taxpayers to bail out banks after the
financial crisis of 2008 and 2009.
"The banks and their shareholders and their creditors got the benefit when
things went well," he told the BBC.
Continue reading the main story
Start Quote
Let's face it, the system we've had up until now has been totally unfair
End Quote
Mark Carney
FSB chairman and Bank of England governor
"But when they went wrong the British public and subsequent generations picked
up the bill - and that's going to end".
Mr Carney explained that the new system would ensure that bank shareholders,
and lenders to banks such as bondholders, would become first in line to bear
the brunt of future losses if banks could not pay out of their own resources.
"Instead of having the public, governments, [and] the taxpayer rescue banks
when things go wrong; the creditors of banks, the big institutions that hold
the banks' debt - not the depositors - will become the new shareholders of
banks if banks make mistakes."
"Let's face it, the system we've had up until now has been totally unfair," he
added.
Bigger cushion
Governments around the world spent hundreds of billions of pounds bailing out
stricken banks during the financial crisis of 2007-08.
At its peak in the UK alone, taxpayers' direct subsidy to banks stood at more
than 1 trillion according to a recent report from the National Audit Office.
In the wake of the financial crisis, world leaders asked the FSB to come up
with proposals to prevent similar bailouts from happening in the future.
The proposed new rules, which are up for consultation, require "global
systemically important banks" to hold a minimum amount of cash to ensure they
will be able to survive big losses without turning to governments for help.
The capital set aside should be worth 15-20% of the bank's assets, the FSB
said.
That is a far bigger cushion against losses than is required by current banking
rules.
The FSB hopes this stronger policy will prevent taxpayers from being forced to
pay billions of pounds again to stop big banks from collapsing, in the event of
another financial crisis.
Ending 'too big to fail'
"Agreement on proposals for a common international standard on total
loss-absorbing capacity for [big banks] is a watershed in ending 'too big to
fail' for banks," said Mr Carney.
"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."
According to the BBC's business editor Kamal Ahmed, analysts estimate the new
capital requirements could cost 200bn ( 157bn) for Europe's banks alone, with
the cost for globally significant banks in the US, Japan and China likely to be
much higher.
The FSB has published a list of 30 banks it regards as "systemically
important", meaning their collapse could have a wider impact on global
financial systems.
In the UK, the banks are Barclays, Standard Chartered, HSBC and the Royal Bank
of Scotland.
Lloyds Banking Group has been removed from the list as its potential impact on
financial systems has declined in recent years.
The UK government spent around 65bn directly bailing out RBS and Lloyds during
the crisis. The government still owns an 80% stake in RBS and 25% of Lloyds.