of the Financial Stability Board Mark Carney.
The world's biggest banks
should hold a buffer of bonds in case of a collapse
so that government bailouts are avoided,
a global regulatory body
proposed on Monday.
The Financial Stability Board (FSB), made up of regulators from the Group of 20 economies (G20), said global banks like Goldman Sachs and HSBC should have a buffer of bonds or equity equivalent to 16 to 20 percent of their risk-weighted assets from January 2019.
The bonds would be converted to equity
to "bail in" a stricken bank. The total buffer would include the
minimum mandatory core capital requirements banks must already hold.
It is being put out to public consultation until Feb. 2, 2015. FSB Chairman and Bank of England Governor Mark Carney said the buffer would be finalized next year, marking a watershed in ending banks that are too big to be allowed to fail.
The new rule will apply to 30 banks the FSB has deemed to be globally systemically important, though initially those from emerging markets would be exempt.
Most of the banks would need to expand their issuance of debt to comply, the FSB said.
Some senior debt already issued would
will also need restructuring. To avoid banks downplaying the
riskiness of their assets to meet the new rule, the buffer, formally
known as total loss absorbing capacity or
TLAC, must also be at least twice
their leverage ratio, a separate measure of capital to total assets
regardless of the level of risk.
Parts of the buffer would be held at major overseas subsidiaries to reassure regulators outside a bank's home country.
Extra requirements from national
supervisors could swell the buffer to 25 percent of risk weighted
assets, it added.