A rule designed to reduce risk in the financial system could end up punishing the wrong banks.
Bloomberg News reports that’s what analysts, economists and some banks say will happen if regulators adopt guidelines proposed last year by the Financial Stability Board, which coordinates banking policy for the biggest economies.
The rule, which would require banks to hold a minimum level of long-term debt that can be converted to equity if they fail, benefits lenders with big securities-trading businesses, the kind that led to the 2008 credit crisis.
The quirk is the result of risk weighting, the mathematical models that treat trading assets as safer than corporate or consumer lending. It will force banks such as Wells Fargo and Banco Bilbao Vizcaya Argentaria, which depend mostly on deposits for funding, to replace them with costlier bonds.
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