Taxpayer rescues of the banking sector will be a thing of the past, the governor of the Bank of England is expected to say on Monday before meetings to back a new deal for lenders considered “too big to fail”.
Mark Carney will say agreement on the last two pieces of the regulatory framework governing the largest global banks are ready to be agreed by the G20 group of nations gathering in Australia at the end of the week.
Speaking at a meeting of central bank officials in Basel, Switzerland, Carney will say that after four years of debate, all the elements of the regulatory jigsaw are in place to prevent a repeat of the multibillion pound bank bailouts that hit taxpayers in the major economies after the 2008 financial crash.
Carney heads the Financial Stability Board, the global body set up in 2009 to advise the G20 on how to make the financial system safer. G20 leaders, including David Cameron, are meeting in Brisbane on Saturday to discuss a range of issues, including Carneys’s recommendations for cleaning up the banking sector.
Agreements have been struck between regulators and banks over a series of rules to prevent a domino effect rippling through the financial system when one or more large banks fail.
At the Basel meeting Carney is expected to say the 29 biggest lenders must conform to tough new rules on the amount of loss-absorbing reserves they hold. Specifically, new debt instruments will force investors who lend to banks to convert loans into equity.
Investors who buy derivatives of bank debts will also agree a moratorium on trading to prevent a run on a bank.
Carney will say the G20 is in a position to agree a new standard on the total loss-absorbing capacity that globally systemic banks must hold.
These measures will shift the burden of a bank bailout away from taxpayers to investors who own the banks or lend them funds.
In October, Carney said the new rules “will ensure globally systemic banks finally have the loss-absorbing capacity that extensive analyses show balances the benefit of greater resilience against the higher funding costs for the banks that results from the removal of public subsidies”.
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