New rules for big banks proposed
New global rules for preventing banks being bailed out by government funds have been revealed.
International regulator the Financial Stability Board (FSB) is putting forward a new requirement for all banks to hold more money against potential losses.
Mark Carney, FSB chairman and governor of the Bank of England, said the changes could be seen as a major development in the financial industry and he added it had been unfair for taxpayers to help large banks during the financial crisis.
“The banks and their shareholders and their creditors got the benefit when things went well,” Mr Carney told BBC News.
“But when they went wrong the British public and subsequent generations picked up the bill – and that’s going to end.”
The changes mean that bank shareholders and lenders to banks would be the first to have to suffer losses if banks could not meet their own obligations.
“Instead of having the public, governments and the taxpayer rescue banks when things go wrong; the creditors of banks, the big institutions that hold the banks’ debt – not the depositors – will become the new shareholders of banks if banks make mistakes,” explained the governor.
A recent report from the National Audit Office revealed that during 2008 and 2009, taxpayers’ direct subsidy to banks totalled more than £1 trillion. The government still owns an 80 per cent stake in the Royal Bank of Scotland, but this would not happen under the proposed regulations.
The FSB changes mean that banks would need to set aside capital worth around 15 per cent to 20 per cent of assets to allow for a substantial fall in turnover.
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