This is a nytimes.com article.
LONDON — A group of financial policy makers has outlined a new framework intended to keep banks around the world from becoming “too big to fail” and requiring government bailouts in a future financial crisis.
The proposed rules would require the world’s biggest banks to maintain capital buffers that could absorb potential losses when a bank is failing and prevent further pressure on the financial system. Regulators are seeking to shift the costs of a failing bank to its investors, rather than on taxpayers in a future financial upheaval.
The new recommendations were outlined on Monday by the Financial Stability Board, a Switzerland-based group of central bankers and financial regulators from the world’s largest economies.
The proposed standards would still have to be adopted by leaders of the Group of 20 big economies, which meet in Turkey this month. The Federal Reserve of the United States announced its own rules for the so-called total loss-absorbing capital in October.
“It is important to recognize that success in ending ‘too big to fail’ may never be absolute because all financial institutions cannot be insulated fully from all external shocks,” Mark J. Carney, the Bank of England governor and the chairman of the Financial Stability Board, wrote in a letter to the Group of 20 on Monday.
“But these proposals will help change the system so that individual banks as well as their investors and creditors beat the costs of their own actions, and the consequences of the risks they take,” he added.
Under the new rules, lenders that have been deemed “systematically important” by regulators would be required by 2019 to maintain a capital buffer equal to 16 percent of their so-called risk-weighted assets in debt that can be used to cover losses in the future. By 2022, the threshold would be increased to 18 percent of assets weighted by risk.
The Financial Stability Board estimated that those 30 banks would collectively need to raise as much as 1.1 trillion euros, or about $1.2 trillion, by 2022, depending on what debt was considered appropriate by regulators.
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