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Carney unveils new rules to prevent taxpayer bailouts of banks

by: Laura Dew
  • 10/11/2014
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New rules have been announced by the Financial Stability Board (FSB) that propose preventing large banks from being bailed out by the taxpayer.

The global regulator, headed by Bank of England governor Mark Carney (pictured), has proposed banks which are ‘too big to fail’ hold more money to protect against losses. Capital set aside for this purpose would be worth 15-20% of banks’ total assets.

The FSB has listed 30 banks which it classes as ‘too big to fail’, including Barclays, Standard Chartered, HSBC and Royal Bank of Scotland.

Lloyd Banking Group is excluded as the body said the potential impact of its failure on the global financial system has declined in recent years.

During the financial crisis, the UK government spent £65bn supporting RBS and Lloyds Banking Group.

Carney described the ruling as a “watershed moment”.

He said: “These agreements will play important roles in enabling globally systemic banks to be resolved without recourse to public subsidy and without disruption to the wider financial system.”

The FSB acknowledged that dividends paid out by the sector may drop if the rules are enforced.

“[Large banks] may pass on a share of their higher funding costs to their clients, prompting a shift of banking activities to other banks without necessarily reducing the amount of activity. Alternatively, dividends and other distributions, such as employee remuneration, might fall.”

 

 

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