Bloomberg: Structured-Note Ban in FSB Bank-Crisis Rule Has ‘Strong’ Backing

The Financial Stability Board plans to retain a ban on structured notes in new rules intended to keep taxpayers off the hook when the world’s biggest banks fail, disregarding industry opposition.

An Aug. 24 FSB document on the total loss-absorbing capacity, or TLAC, standards cites a “strong consensus” among regulators to exclude structured notes from the list of eligible liabilities. In a June 4 working paper, the FSB had said admitting the notes was an “option under exploration.”

The FSB, led by Bank of England Governor Mark Carney, also proposed phasing in TLAC, according to the document seen by Bloomberg. Banks would be required to issue ordinary shares, subordinated debt and other potentially loss-absorbing securities equivalent to 16 percent to 18 percent of risk-weighted assets by 2019, rising as high as 20 percent at a later, unspecified date.

TLAC is designed to ensure that the world’s 30 most systemically important banks can be stabilized and shut down in an orderly way, without public bailouts. Attempting to impair structured notes, complex securities with embedded derivatives that lenders use to raise funding, would potentially hinder the swift resolution of a bank in difficulties and risk prompting legal challenges to regulators’ actions.

The full Bloomberg story is here.

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