With new global rules for banks unveiled, are we nearing the end of too big to fail?

Financial Stability Board chair Mark Carney says the new rules are a watershed moment

Dr Thomas Huertas, a partner at EY and head of its global regulatory network, says Yes.

Tougher regulation reduces the likelihood that banks will fail – but it can still happen.

In that event, yesterday’s rules assure that the bank will have enough funding from investors to absorb even extreme losses.

So investors, not taxpayers, will bear the loss.

They are not intended to euthanise banks in extremis, but to diminish disruption to financial markets and the economy at large, as the bank is restructured, sold off, or liquidated over time.

Bail-in is the critical element.

This enables the resolution authority to convert investor obligations, such as subordinated debt, into new equity. This means the bank can remain operational, delivering critical functions (such as payments) and gain access to liquidity.

Ultimately, it is bail-in that means the bank can re-open on Monday morning. And it can be done in an orderly manner – just as would be the case for a non-financial firm in administration.

We are much closer to saying goodbye to too big to fail.

Adam Memon, head of economic research at the Centre for Policy Studies, says No.

The costs to taxpayers of bank bailouts led to one of the biggest transfers of wealth from the poor to the rich in human history.

So the new rules are a welcome step in ending too big to fail. But they are insufficient.

The heavily increased requirements for total loss absorbing capacity will not initially apply to banks headquartered in emerging markets, and are not due until at least 2019.

Moreover, the simple act of identifying 30 “systemically important institutions” just marks them out as under special government protection.

It is still also unclear how useful the definition of systemically important institutions actually is. Lloyds, for example, no longer makes the list, but nobody seriously believes that, if faced with a crisis, the government would not intervene.

In addition, questions remain over how effective the rules would be in combatting a short-term liquidity crunch.

Reports of the death of too big to fail are greatly exaggerated.