New rules for “Too Big to Fail” Banks

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During the 2008 and 2009 global financial crisis, banks were bailed out using taxpayers money. It has now been noted that that was “unfair”.

banks in Canary Wharf
New rules for the top 30 global banks were unveiled to conform with the new capital norms aimed at covering all their probable losses

Mark Carney, the chairman of the Financial Stability Board (FSB), a global regulator and the governor of the Bank of England unveiled new rules today for the top 30 global banks today.

Top Banks will now be required to conform with the new capital norms aimed at covering all their probable losses. Simply put, they will require to hold much more money to hedge themselves against losses.

Experts criticising these proposed banking standards said that for banks, holding more money would imply less money in circulation, a cut in bonuses to the staff and reduced dividend to shareholders. Experts also observe that banks, under pressure to comply with the new norms, might call for more money from the market in the form of unplanned public capital and reduce the risks attached to their investments.

In the UK, taxpayers’ cash was used to save the Royal Bank of Scotland and the Lloyds Banking group during the financial crisis. Banks such as HSBC and RBS would have to comply with these rules that Carney announced today.

Technically, the world’s largest banks would be required to hold 16%-20% of their risk-weighted assets in equity and cancelable debt starting 2019. The FSB has allowed this strategic development for debate till early February next year.

The total loss-absorbing capital would have to be twice that of the Basel leverage requirement.

Photo-JH Images.co.uk/Flickr

 

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