Global financial regulator considers adapting big bank proposal

The Financial Stability Board, the global regulator chaired by Mark Carney, is considering adapting its proposed too-big-to-fail bank fix in response to industry concerns to make some structured notes eligible to absorb losses.

A June 4th FSB working paper o states that an “option under exploration” is to admit structured notes, excluded in the original proposal on total loss-absorbing capacity, “to the extent that the repayment of the principal at maturity is unconditional and not contingent on any derivative- linked feature.”

The loss-absorption proposal is intended to make sure that the world’s 30 most systemically important banks can be stabilised and shut down in an orderly way, without taxpayer bailouts.

The rule would require banks to issue ordinary shares, subordinated debt and other potentially loss-absorbing securities equivalent to as much as a fifth of their assets weighted for risk.

Mr Carney, head of the Bank of England, said in March that the final loss-absorption rules would look “very similar” to an initial draft published last year.

The June 4th document shows that some alterations are under consideration without changing the fundamentals. In addition to weakening the structured note ban, other points under discussion include how a planned exemption for emerging-market banks could be phased out over time and the exact size of the loss absorption- requirements.

The FSB, which brings together regulators and central bankers from the Group of 20 nations, plans to deliver the final rules for endorsement by G20 leaders in November.

- Bloomberg