The proposals are designed to avoid the need for taxpayers to bail out banks ever again.
The Financial Stability Board (FSB) the organisation that co-ordinates banking regulation across the G20 Nations, has published new proposals that will require the world’s largest banks to issue “buffer bonds” as the final part of reforms designed to prevent a repeat of the 2008 financial crisis. The world’s biggest 30 banks will be expected to raise £355bn to boost their capital reserves by 2022.
The proposals are designed to avoid the need for taxpayers to bail out banks in a future crisis that are deemed “too big to fail”. Instead investors will be required to accept a loss on their investments.
In the event of a financial crisis the value of those bonds could be written down and used to raise funds for the bank. The reform means investors will be the first to take a financial loss before taxpayers are asked to bail out the bank in question.
The FSB has also increased bank capital requirements and imposed restrictions on bankers’ bonuses. The FSB believes the reforms will allow a big bank to fail without creating the level of panic in financial markets after Lehman Brothers went under in 2008.