World Economy

FSB Promises Too-Big-to-Fail Fix

FSB Promises Too-Big-to-Fail FixFSB Promises Too-Big-to-Fail Fix

Global regulators reached a draft agreement on 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 proposed rule is known as total loss absorbency capacity, and is considered to be the last major reform after the 2007-09 financial crisis forced governments to shore up lenders, Reuters reported.

The rule will apply to nearly all the 30 big banks the Financial Stability Board has already deemed to be “globally systemic” such as Goldman Sachs, Deutsche Bank and HSBC.

“At today’s meeting, FSB members discussed the TLAC impact assessments, and agreed the draft final principles and the updated term sheet,” the FSB said in a statement.

FSB said members support consistent implementation of this robust minimum standard, adding that the TLAC standard and its timelines will be finalized by the time of the G20 Summit in November.

FSB will make policy recommendations based on its assessment of whether existing or additional policy measures could mitigate potential risks.

The first version of the Higher Loss Absorbency standard, which requires the Global Systemically Important Insurers to hold extra buffer on top of the basic capital requirements, was greenlighted by the FSB.

Role of compensation, corporate governance frameworks and regulatory enforcement in reducing employee misconduct were also reviewed by the FSB.

FSB members were divided going into the London meeting, with nations such as the US and Germany pushing for the toughest possible rules, pitted against Japan, France and others that prefer a softer line, according to three people with knowledge of the matter, who asked not to be identified because the talks are private.