Bank of England introduces new bailout rules

8th Nov 2016 13:09

(ShareCast News) - Bank of England has given UK lenders an additional two years to accrue enough funds so that they will not be reliant on taxpayer bailouts if they fail."The new rules will be introduced in two phases," Bank of England said in a statement on its website."Banks will be obliged to comply with interim requirements by 2020. From 1 January 2022, the largest UK banks will hold sufficient resources to allow the Bank of England to resolve them in an orderly way," the central bank said.Governor Mark Carney described the policy as a significant milestone on the journey to end the oft-repeated banking-sector mantra 'Too big to fail', which was frequently heard at the time of the global financial meltdown."The implementation of MREL (Minimum Requirement for own funds and Eligible Liabilities) will ensure that banks that provide essential economic functions hold sufficient resources to be resolved in an orderly way," Carney said.He said this would be without recourse to public funds, whilst allowing households and businesses to continue to access the services they need.The central bank was outlining new rules on how lenders -- banks and building societies -- would have to hold an extra £223bn airbag of loss-absorbing bonds.Lenders would have to issue bonds that could be written down to top up depleted core capital if they failed, giving regulators breathing space to close or restructure the bank.The idea was to avoid a repeat of the messy Lehman Brothers' collapse in 2008, and to avoid a repetition of the taxpayer-funded 2008 bailouts of Lloyds and Royal Bank of Scotland during the global financial meltdown.Bank of England said said lenders operating up to 80,000 accounts could be eligible for lighter treatment, which was more than double the 40,000 originally mooted.Its statement came after consultation that began in late 2015.The central bank aimed to help smaller lenders by increasing the size they could reach before more onerous capital rules became applicable.