Carney: Too-Big-to-Fail Rules Show National Differences

Global banking rules designed to put an end to government bailouts will account for diverse approaches to financial failure across countries, said Mark Carney, chairman of the Financial Stability Board.

The requirements for banks to hold liabilities that can be written off in a crisis will reflect “differences in national resolution regimes and banking system structures,” Carney wrote in a Sept. 15 letter to finance ministers and central bank governors of the Group of 20 nations.

The measure, known as total loss absorbing capacity, will also “recognize that emerging-market banking systems may not immediately meet the same standards as applied to advanced economies,” Carney wrote.

The FSB, which consists of regulators and central bankers from around the world, plans to present the rules to a G-20 summit in Brisbane in mid-November. The writedown guidelines are part of a package of measures designed to make sure taxpayers are no longer on the hook when banks fail.

The FSB plans would force banks to issue junior debt and other securities that could clearly be written down in a crisis. The Bank of England, which Carney also heads, and U.S. agencies want at least 20 percent of banks’ liabilities to consist of instruments such as unsecured debt that can be wiped out if the lender fails.

The package of reforms also includes plans to give regulators global powers to suspend default clauses in derivatives contracts in a crisis.

Carney said that “progress has been made by FSB members working alongside the International Swaps and Derivatives Association, but finalization for the Brisbane summit is not assured.”

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