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 plans are being drafted by the Financial Stability Board, the regulatory task force of the Group of 20 economies which declined to comment ahead of a G20 summit in November, when G20 leaders will discuss the reform before it is put out to public consultation.
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.
There had been unease in Asia and parts of Europe over how big the bond issues need to be to provide this cushion but there is now a new optimism amongst bankers and regulators that the G20 will reach a deal in November.
“The industry is definitely in favor of making resolution, supported by an appropriately flexible concept of GLAC, work. That is the key pending aspect on ending too-big-to-fail,” said Andres Portilla, director of regulatory affairs at the Institute of International Finance, a Washington-based banking and insurance lobby.
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