G20 towards deal on ‘bail-in’ bond cushion for banks
Government leaders are expected to agree in November that the world’s top banks must issue special bonds to increase the amount of capital which can be tapped in a crisis instead of calling on taxpayers to come to the rescue, industry and G20 officials said.
The bonds, known as “gone concern loss absorption capacity” or GLAC, are seen by regulators as essential to stopping the world’s 29 biggest lenders from being “too big to fail”.
The reform would put in place the final major piece of G20 regulation on banking as the global body turns to a “post-crisis” agenda of fostering economic growth and bedding down the rules it has approved.
However, a G20 source said a deal was not only expected but would also be more detailed than some parties anticipate, which is essential for conducting a thorough impact assessment before finalizing the rules.
“The authorities and the FSB are working to have a proposal that will contain sufficient granularity of numbers to be a meaningful consultation and quantitative impact study to calibrate the final rule,” the source said.
Regulators ultimately want to price bank debt better and end the cheaper funding that too-big-to-fail banks enjoy because markets assume governments would never allow them to collapse.
“We have been lowering our systemic support assumptions for banks or changing their outlooks to ‘negative’ to reflect the ongoing effort by governments to try to eliminate that support,” said Johannes Wassenberg, managing director of banking at Moody’s credit rating agency in Europe.
The plans for bail-in bonds are among the last of what G20 officials call the “heavy lifting” on banking industry reforms that came in the aftermath of the financial crisis.
Source: Reuters
