Investors will bear more losses more quickly when a big bank gets into trouble, under new rules laid out by global regulators the Financial Stability Board (FSB) yesterday.
All global systemically important banks (GSIBs) will be affected as they will issue more capital to build up the buffers of total loss absorbing capacity (TLAC). Analysts believe British and Swiss banks will be hit the least, while big banks in the rest of Europe will be affected the most.
Bonds and equity making up the TLAC will have to amount to 16 to 20 per cent of most banks’ risk-weighted assets by 2019.
On top of that there is a GSIB surcharge of between one per cent and 2.5 per cent depending on the scale of the bank and the entity responsible for its resolution. Combined with other buffers, it takes the minimum TLAC to as much as 25 per cent.
“We estimate that the European GSIBs which would be required to issue the most amount of new debt include BNP Paribas, Santander, Societe Generale, Deutsche Bank, BBVA and Unicredit,” said Citi’s Andrew Coombs. “Least impacted are Swiss and UK banks, which would benefit from existing holding company structures, from which they can issue senior.”
And the rules will shift costs from governments and on to investors, to reflect the increased risk.
“The added funding costs of TLAC will reduce the implicit government guarantees by sovereigns for GSIBs and should translate into lower sovereign yields,” said analyst Shailesh Raikundlia from Espirito Santo.
“GSIB dividends and other distributions, such as pay, might fall.”
Shares in Britain’s GSIBs – Barclays, RBS and HSBC – barely moved on the day, underlining that their capital plans are unlikely to change to match the new rules.