Basel publishes final rules to tackle “too big to fail” banks: Reuters

Oct 12 (Reuters) — Global regulators have published final rules that aim to limit the impact on financial markets if mega banks run into trouble.

The rules must be applied by the world’s 30 biggest “systemically important” banks like Goldman Sachs, HSBC and Societe Generale in a bid to make sure they have enough resources to call on in a crisis to avoid taxpayer bailouts.

Banks will have to issue billions of dollars in known as total loss absorbing capacity debt or TLAC debt which can be written down to avoid burning through all their capital in a crisis.

TLAC is seen as a key tool for ending “too big to fail” banks by making them easier to close down in an orderly way without the market mayhem seen when Lehman Brothers went bust in 2008.

The Basel Committee of banking supervisors published the final TLAC rules on Wednesday to limit how much of another bank’s bonds a bank can hold.

Banks will be allowed to buy TLAC bonds of other banks up to certain thresholds, but Basel also made some changes following feedback from the industry.

In a concession, banks can hold an additional 5 percent if they meet extra conditions, Basel said in a statement.

“While we welcome the additional 5 percent threshold for certain additional instruments, this does not go as far as the industry had suggested in response to the consultation,” a banking official said on condition of anonymity.

Banks will also be disappointed that Basel has kept a requirement to trim their Tier 2 capital reserves in line with the amount of TLAC bonds they buy. (Reporting by Huw Jones. Editing by Jane Merriman)