The world's largest banks may have to raise as much as €1.1 trillion as part of new rules aimed at preventing another global financial crisis.
The Financial Stability Board (FSB), an international regulatory board set up to coordinate work of financial authorities, has issued a 'final' set of standards aimed at banks that are perceived as being 'too big to fail'.
The proposed standards would mean that 30 of the world's top banks would be required to have total loss-absorbing capacities (or TLAC) in order to help minimise impacts on financial stability and avoid exposing public funds to loss in the case of a failure.
Affected banks would be required to have a loss-absorbing capacity equivalent to at least 16% of risk-weighted assets in 2019.
The percentage would increase to 18% by 2022.
Bloomberg reports that banks could face shortfalls of €457bn to €1.1tn under the new rules.
Mark Carney, Chair of the FSB and Governor of the Bank of England, said that the 'robust' new global standard means that global systemically important banks (or G-SIBs) "can fail without placing the rest of the financial system or public funds at risk of loss. This new standard, which will be implemented in all FSB jurisdictions, is an essential element for ending too-big-to-fail for banks.
"The economic impact assessments conducted as part of the detailed policy work shows that the economic benefits of the final standard far outweigh the costs,” Mr Carney added.
The FSB coordinates regulatory efforts across the Group of 20 economies (G20). G20 leaders will be asked to endorse the new reforms at a meeting in Turkey next week.
