Biggest banks must bolster bail-in funds to reduce rescue risk, says Bank of England

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The biggest banks will need to have minimum bail-in measures in place by 2019 (Source: Getty)

Big banks have until 2022 to boost their bail-in resources to the point where they should not need to be bailed out if the economy turns south, the Bank of England has noted today.

Bail-in funds refer to special kinds of debt which a bank can call in for equity if it needs to, essentially meaning investors and creditors will pump new resources into bank rather than the state being called on to do so.

According to the Bank of England's policy report on Minimum Requirement for own funds and Eligible Liabilities (MREL), from the start of 2019, global systemically important banks, which is a term given to the biggest banks across the world, with a UK establishment will have to make sure they meet the various minimum requirements on rescue funds set by the Financial Stability Board (FSB). 

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A further set of standards will apply to other institutions from the start of 2020, although the Bank has today decided these particular rules won't apply to banks with fewer than 80,000 accounts. Previously, the Bank of England was going to apply the rules to institutions with more than 40,000 accounts.

The 2019 and 2020 deadlines mark the beginning of an interim period, ending in 2022. After this period, banks must meet a more stringent set of requirements, which the central bank deems necessary to keep them capitalised in a downturn. 

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"This policy is a significant milestone on the journey to end too big to fail in the UK," said Mark Carney, governor of the Bank of England, who also chairs the FSB. "The implementation of MREL will ensure that banks that provide essential economic functions hold sufficient resources to be resolved in an orderly way, without recourse to public funds, and whilst allowing households and businesses to continue to access the services they need."

Today's statement is the end result of a consultation which kicked off in December last year.