Banks whose failure may cause a national economy to collapse will be targeted by global regulators for possible extra rules, said Nout Wellink, chairman of the Basel Committee on Banking Supervision.
The Financial Stability Board will “take on the issue of how best to treat” banks that pose risks at country-level, said Wellink, in the text of a speech in Cape Town today. Local regulators should also consider “appropriate measures.”
The FSB focus on preventing national-level crises will follow efforts to regulate banks deemed to be systemically important to the world’s economy, said Wellink, who also heads the Dutch central bank.
The FSB plans to finish by mid-2011 a first list of lenders that are systemically important on a global scale. Globally significant lenders are so big that their “distress or failure would cause significant dislocation in the global financial system and adverse economic consequences across a range of countries,” the board said in November.
The Basel committee, which proposes capital and liquidity requirements, is a member of the FSB and is assisting it on the possible rules for too-big-to-fail banks.
“Each country” must also “determine if it has banks of a size and complexity relative to its domestic economy that are too big to fail and should take appropriate measures,” Wellink said today.
The FSB has said globally significant lenders may face a “capital surcharge” or requirements to issue minimum amounts of bonds that can be written off or converted to equity. They may also face liquidity surcharges and tighter limits on the size of their dealings with a single counterparty. The FSB plans to make a decision on these requirements by the end of this year.
The Basel committee’s future work plans also include reviewing the capital that bank’s have to hold against assets on their trading books, possibly modifying capital rules so they do not harm international trade, and reducing links between bank’s capital requirements and credit ratings.
The FSB was set up by the Group of 20 nations in 2009 to oversee the work of groups setting international financial rules.