Bonds buffer will protect biggest banks from bankruptcy
The largest banks in the world should have a bonds buffer in the event of failure so to be avoided bailouts by governments offer international regulatory authority. The idea is the last major part of the banking reform proposed by world leaders after the financial crisis in the period 2007-2009, during which millions of taxpayers […]
The largest banks in the world should have a bonds buffer in the event of failure so to be avoided bailouts by governments offer international regulatory authority. The idea is the last major part of the banking reform proposed by world leaders after the financial crisis in the period 2007-2009, during which millions of taxpayers have to support under-capitalized lenders. The Financial Stability Board (FSB), comprised of regulators from the Group of 20 top economies in the world (G20), said that international banks such as Goldman Sachs and HSBC should have to January 2019 with buffer bonds or equity, equivalent to 16-20% of the weighted relative risk assets.
The bonds buffer will be converted into capital, to ensure the stability of the problem bank. The total buffer will include minimum core capital requirements that banks must meet. The proposal is expected to be endorsed by the G20 leaders later this week in Australia. The issue will be open for public consultation until 2nd February 2015. The president of the Financial Stability Board and governor of the Bank of England Mark Carney said that the idea of the buffer will be made complete in the next year. This will be marked a turning point for the termination of the practice in some parts of the world banks that are too big to be left to fail. The new rule will apply to 30 banks Financial Stability Board identified as important to the global financial system.
“Once implemented, these agreements will play an important role in the world and will allow banks systemically important to be bailed out without resorting to a government subsidy and without problems to the wider financial system”, Carney said in a statement.
Most of the banks will have to expand its debts in order to comply with the requirements, said FSB. Some current liabilities you may need restructuring. According to plans, parts of the bonds buffer will be owned by foreign subsidiaries, which will serve as a stand for regulators outside the home country of the parent bank.