LONDON
(Reuters) - Banks headquartered in Britain must find a net 4 billion pounds
($5.3 billion) to comply by 2022 with rules aimed at shielding taxpayers when
lenders
go bust, the Bank of England said on Monday.
Ten years
after a financial crisis that forced UK taxpayers to inject billions of pounds
into lenders like Royal Bank of Scotland and Lloyds, the BoE said the final
pieces to a system for dealing with failing banks were being slotted into
place.
This would
ensure that even large banks can be wound down and were no longer “too big to
fail” and hold taxpayers to ransom. BoE Deputy Governor Jon Cunliffe said the
BoE does not run a “zero failure regime”.
“We don’t
want a financial center that doesn’t take risks,” Cunliffe told reporters.
The ability
of the City of London to remain a dominant global financial hub is coming into
sharp focus as Britain prepares to leave the European Union in March, 2019.
The BoE was
setting out more detailed proposals on the location within banking groups of
mandatory “bail-in” debt that can be written down to replenish burnt-out
capital in a crisis.
A gross 116
billion pounds of existing bank debt will have to be rebadged so that investors
are fully aware it can be written down, it said.
The net
shortfall for the bail-in debt known as “MREL” is much lower at 4 billion
pounds, a figure the sector is expected to raise without difficulty.
In any given
year, Britain’s gross domestic product would be 0.02 percent lower due to MREL
requirements, but the upside is that “too big to fail” is ended, a bank’s
critical functions continue even in a crisis, and taxpayers are shielded, the
BoE said.
With
interest rates low, UK banks like HSBC have already been rebadging millions of
pounds in debt over the past year.
LIQUIDITY
The BoE also
made clear it would be willing to provide liquidity to temporarily support a
bank being closed down, but only if the lender’s own resources are exhausted
and access to private sector funding is disrupted.
Among the
post-crisis reforms is a requirement for banks to write “living wills” or
resolution plans that set out how they would cope with a crisis that was eating
into their capital and cash reserves.
Cunliffe
said the BoE would publish summaries of resolution plans of major UK banks from
2019, but he was still working out what the summaries should contain.
The rules on
bail-in debt are based on EU law and are expected to be copied onto Britain’s
statute book by Brexit.
The Bank has
been conducting tests with regulators in the United States and the European
Union to check that rules on winding down banks can work for cross-border
lenders.
“International
co-operating remains a critical component of ensuring banks with cross-border
activities can be resolved,” Cunliffe said.
($1 = 0.7515
pounds)
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