Advertisement

Global watchdog seeks deal on ending 'too big to fail' banks

By Huw Jones

LONDON (Reuters) - Global regulators meet in London on Friday to agree a rule on stopping banks being "too big to fail" by requiring them to hold enough equity capital and bonds to avoid taxpayers being called on in a crisis.

The Financial Stability Board (FSB), chaired by Bank of England Governor Mark Carney, wants the world's biggest banks to have enough funds to tap when in trouble.

The proposed rule is known as total loss absorbency capacity or TLAC, and is seen by Carney as the last major reform after the 2007-09 financial crisis forced governments to shore up lenders.

The rule will apply to nearly all the 30 big banks the FSB has already deemed to be "globally systemic" such as Goldman Sachs, Deutsche Bank and HSBC.

Under the original proposal, the banks would hold TLAC, made up of capital and bond issuance, equivalent to 16 to 20 percent of their risk-weighted assets, when written down.

The TLAC figure would include the 10 percent or so of capital to risk-weighted assets the big banks already hold under existing rules.

The FSB is made up of treasury officials, regulators and central bankers from the Group of 20 economies (G20) and has faced splits over how tough the TLAC reform should be.

A compromise has been proposed to phase in the new requirement so that banks would hold TLAC of 16 percent from 2019, rising to 20 percent by 2022 or later.

This would be an alternative to a single, fixed figure for TLAC from 2019, as initially foreseen.

Also under the original proposal, TLAC must be equivalent to double the global minimum leverage ratio, currently set at 3 percent. A leverage ratio is a broad measure of capital to all of a bank's assets on a non-risk weighted basis.

However, global banking regulators are in separate discussions on whether the 3 percent minimum should be higher and won't make a final decision until 2016 or later, creating uncertainties for banks having to prepare for TLAC.

A banking source said the FSB may agree to continue with doubling the current 3 percent leverage ratio for TLAC, and revisit this calculation once regulators have decided on a final minimum ratio.

"I am more optimistic they will reach a deal on Friday," the source added.

UBS and Bank of America have said they can meet the TLAC requirement well ahead of 2019, if not already. A deal on Friday would need endorsement from G20 leaders meeting in November.

(Reporting by Huw Jones; editing by Adrian Croft)