Bank of England officials led by Mark Carney, the Bank of England governor, are attempting to bridge sharp differences among leading G20 countries as they prepare a landmark set of proposals aimed at tackling the problem of “too big to fail” banks according to the Financial Times today.
Talks under the auspices of the global Financial Stability Board (FSB) over the summer are approaching a key stage as officials aim to clinch an agreement on bail-ins and the bailing in of creditors including depositors of banks.
Finance officials are hoping to pave the way for proposals to be tabled at the G20 leaders meeting at the Brisbane summit in November.
The issue is of major consequence to globally systemic lenders such as Citigroup, Barclays and BNP Paribas, as some will have to issue billions of dollars of fresh bonds earmarked to carry losses.
The issue is of major consequence also to depositors who could see their savings confiscated as happened in Cyprus.
The complexity of the topic and differences between countries’ legal regimes and corporate structures are raising questions over how detailed any framework will be.
Japan is one of the countries with problems with bail-in plans amid concerns that they are not easily compatible with the structure of its banking system. Its banks are heavily deposit-funded, and officials are uncomfortable about the idea of bail-ins.
Japanese banks are already vulnerable and bail-ins could hurt consumer sentiment in the already struggling Japanese economy. Concerns in Tokyo are said to be sufficiently profound for it to push its case right up to the summit itself.
China is also sceptical about the notion of private sector bail-ins given its banks are state-owned. “There are some very entrenched positions,” one official told the FT.
Russia is likely to oppose the coming bail-in regime as well as many other large creditor nations.
Mr Carney, who also chairs the FSB, said in March he wanted to “break the back” of the too big to fail issue this year. He said regulators sought by Brisbane to have cracked two major issues – on the loss absorbing capacity that big banks have to hold and on contractual provisions in derivatives contracts.
Bail-ins are coming to banks in the western world with consequences for depositors.
Must read guide to and research on deposit confiscation and banks that are vulnerable to deposit confiscation can be read here:
Protecting Your Savings In The Coming Bail-In Era