US and UK regulators will unveil the first cross-border plans to deal with failing global banks, outlining proposals to force shareholders and creditors on both sides of the Atlantic to take losses and to ensure that sufficient capital exists in the banks’ headquarters to protect taxpayers.
Writing in the Financial Times, Martin Gruenberg, chairman of the US Federal Deposit Insurance Corporation, and Paul Tucker, deputy Bank of England governor, say this represents the first concrete steps to end the “too big to fail” problem of international banks.
“All countries share a very strong public interest in developing the capacity to resolve global systemically important financial institutions in a credible and effective way,” the two bank regulators write.
The strategy paper says shareholders should expect to be wiped out and unsecured bondholders “can expect that their claims would be written down to reflect any losses that shareholders cannot cover”, which did not happen when the US and UK propped up their international banks in 2008.
Senior management would be removed but critical business functions would continue and healthy subsidiaries could keep operating. The intervention would occur at international banks’ top-tier holding company level.
– Copyright The Financial Times Limited 2012
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