Banks will be re­quired to find ex­tra £4bn to pro­tect against fu­ture bailouts

Belfast Telegraph - Business Telegraph - - Public Sector Jobs - BY KALYEENA MAKORTOFF

BANKS head­quar­tered in the UK will need to come up with an ex­tra £4bn to help pro­tect Bri­tish tax­pay­ers from be­ing forced to fund an­other round of bailouts, the Bank of Eng­land has said.

Es­ti­mates re­leased by the Bank, which is led by Gover­nor Mark Car­ney ( right), show an in­dus­try-wide short­fall in the amount that banks, build­ing so­ci­eties and in­vest­ment firms need to hold in or­der to meet new guide­lines known as the min­i­mum re­quire­ment for el­i­gi­ble li­a­bil­i­ties and own funds (MREL), set to come into force in 2022.

Firms will be re­quired to re­struc­ture a to­tal of £116bn worth of ex­ist­ing debt, but are cur­rently fac­ing a net short­fall of £4bn in or­der to meet the new reg­u­la­tions, the con­sul­ta­tion doc­u­ment ex­plained.

MREL forces banks to hold enough money to ab­sorb losses, which could be drawn down in the face of col­lapse to fi­nance an orderly wind-down.

UK banks have al­ready been build­ing up sig­nif­i­cant bal­ance sheet buf­fers since the 2008 fi­nan­cial cri­sis to meet new rules.

MREL re­quire­ments aim to help avoid an­other round of bank bailouts, as seen dur­ing the last fi­nan­cial cri­sis when the UK Gov­ern­ment was forced to step in and save Royal Bank of Scot­land and Lloyds Bank- ing Group, spend­ing £46m and £20.5bn re­spec­tively of tax­payer cash. The Gov­ern­ment also made moves to na­tion­alise both North­ern Rock and Bradford & Bin­g­ley dur­ing the crash. While the Bank warned that the MREL safe­guards could ul­ti­mately in­crease the cost of lend­ing for consumers, and may have a “neg­a­tive ef­fect on in­vest­ment and the level of GDP (gross do­mes­tic prod­uct)”, it sug­gested those costs were worth the ben­e­fits. “En­sur­ing that in­sti­tu­tions have suf­fi­cient loss-ab­sorb­ing ca­pac­ity in res­o­lu­tion is nec­es­sary to make res­o­lu­tion cred­i­ble with­out public cap­i­tal sup­port and there­fore to end the ‘ too big to fail’ prob­lem,” the pa­per ex­plained.

“It can also en­sure the con­ti­nu­ity of crit­i­cal func­tions and re­duce un­cer­tainty as­so­ci­ated with in­sti­tu­tion fail­ures.”

While ad­min­is­tra­tive costs of im­ple­ment­ing MREL will vary for each firm, it ex­plained that they are likely to be one-off costs that would be rel­a­tively straight for­ward for banks to ab­sorb.

The Bank said MREL also cre­ates an in­cen­tive for banks to avoid “ex­ces­sive risks”, since the cost of a col­lapse will be shoul­dered by cred­i­tors rather than public funds.

The Bank of Eng­land is now call­ing for feed­back on its con­sul­ta­tion pa­per un­til Jan­uary 2, 2018.

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