Brussels, 13/11/2014 (Agence Europe) - The Financial Stability Board has opened a consultation, to run until February 2015, on a proposal obliging 30 international banks of systemic importance to have sufficient resources available to them to fund a resolution process.
Under the plan, a safety buffer ('total loss-absorbing capacity', or TLAC) will be brought in from 2019, corresponding to a reserve of between 16% and 20% of bank assets, weighted by risks. Some of this money could be raised in the form of debt.
According to the Financial Stability Board, which brings together the financial regulators of the G20 countries, this new standard would give the authorities in the host country and the country of origin the assurance that global banks of systemic importance have sufficient capacity to absorb losses, both before and during a resolution process, and to apply a resolution process which would minimise the impact on financial stability and guarantee the continuity of critical banking activities (such as deposits and payments). It would also help to reduce the implicit guarantees enjoyed by the banks which are considered 'too big to fail', such as the advantage of being able to raise funds on the markets at a low cost, safe in the knowledge that they will be bailed out by the public authorities in the event of failure.
This standard was announced a few days ahead of the G20 Summit (Brisbane, 15-16 November). (MB)