New ‘too big to fail’ rules could force banks to raise up to $1.19 trillion

November 9, 2015 in Economy, Financial Crisis, News by RBN Staff

Market Watch
 | Published: Nov 9, 2015 7:11 a.m. ET

FSB rules apply to 30 banks; some may be forced to issue billions in new equity and debt

Getty Images   J.P. Morgan Chase is one of the world’s 30 biggest banks affected by the new rules.

BRUSSELS — Global financial regulators published new rules that aim to stop banks from becoming “too big to fail,” to prevent a repeat of the 2008 financial crisis, when taxpayers had to bail out banks whose collapse would have threatened large-scale financial panic.

The plan, drawn up by the Financial Stability Board in Basel, Switzerland, aims to ensure that the world’s biggest lenders maintain sizable financial cushions that can absorb losses as a bank is failing, without threatening a crisis in the broader banking system. It sees the cost of a giant bank’s failure being borne by its investors, not taxpayers.

The new standards aim to make banks change the way they fund themselves to better weather a crisis, a requirement that could force firms to raise more than $1 trillion in new securities and possibly dent profits.

The rules will apply to the world’s top 30 banks, such as HSBC Holdings PLCHSBA, -0.04%  , HSBC, +0.33%  J.P. Morgan Chase & Co. JPM, +0.09%  and Deutsche Bank AG DB, -1.59%  , which the FSB classifies as “systemically important.” Banks are considered to be systemically important if their failure would pose a broad threat to the economy.

Read: These are the world’s 30 ‘too-big-to-fail’ banks

Under the plan, large lenders will have by January 2019 to hold a financial cushion of at least 16% of their risk-weighted assets in equity and debt that can be written off. The minimum total loss absorption capacity, or TLAC, requirement will gradually increase, reaching 18% of assets weighted by risk by January 2022.

Banks supervisors estimated that the 18% standard would require banks to raise €1.11 trillion ($1.19 trillion) of loss-absorbing securities by 2022.

An expanded version of this report appears on