Global banks to introduce buffer in event of future crises

Global regulators are proposing new rules to ensure that bank creditors pay the expense as opposed to the current situation of the taxpayers fitting the bill when a big lender collapses. Mark Carney, the chairman of the Financial Stability Board and Bank of England Governor, said the plans marked a turning point in ending banks that were too influential to be allowed to fail.

Global banks to introduce buffer in event of future crises

Global regulators are proposing new rules to ensure that bank creditors pay the expense as opposed to the current situation of the taxpayers fitting the bill when a big lender collapses. Mark Carney, the chairman of the Financial Stability Board and Bank of England Governor, said the plans marked a turning point in ending banks that were too influential to be allowed to fail.

"Once implemented, these regulations will play important roles in enabling globally systemic banks to declare insolvency without resorting to using public funding and without disruption to the wider financial system" stated Mr Carney.

After the 2007-09 financial crisis, governments had to spend billions, funded substantially by taxes to rescue banks that ran into trouble and could have threatened the global financial system if allowed to go into bankruptcy. Since then, regulators from the group of 20 economies have been trying to find ways to prevent history repeating itself.

The plans envisage global banks such as Goldman Sachs and HSBC Holdings to have a buffer of bonds or equity equivalent to at least 16-20% of their risk-weighted assets, including loans, from January 2019. These bonds would be converted to equity to help ease up a bank who may be running into trouble. The banks' total buffer would include the minimum mandatory core capital requirements banks must already have to strengthen their defences against future crises.


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