WRAPUP 2-Too big to fail bank plans stretch into 2011

* “Too big to fail” bank measures need more time to complete

* FSB’s Draghi says measures will vary by country

* ECB’s Constancio doubts global bank resolution agreement

* EU’s Barnier says “polluter must pay” in bank failures

(Adds G20 source, analyst comment)

By Rachel Armstrong and John O’Donnell

SEOUL/BRUSSELS, Oct 20 (BestGrowthStock) – Steps to avoid “too big
to fail” banks from destabilising markets and the world economy
will take longer to agree and a common global approach is beyond
reach, regulators and central bankers said on Wednesday.

Leaders of the Group of 20 economies (G20) meet in Seoul
next month and were hoping to agree a fleshed out package for
avoiding another Lehman-style bank failure that nearly brought
the world’s financial system to its knees.

The aim was to ensure that when another big bank with
operations in many countries gets into trouble, a framework is
in place that allows it to fail without global disruption or the
need for taxpayer money.

The Financial Stability Board is tasked by the G20 to draw
up the package of coordinated “too big to fail” measures and
signalled on Wednesday that next month’s summit will be another
milestone rather than the end game for this issue.

The FSB will not now present detailed plans on how big banks
can be made less risky but instead will make broad
recommendations and timelines, its chairman Mario Draghi said.

Draghi ruled out a common G20 approach to so-called
systemically important financial institutions (SIFIs), saying on
Wednesday: “Parts will differ from country to country.”

The FSB is drawing up a menu of options that includes
bail-in bonds, contingent capital, capital surcharges and
resolution mechanisms but each item is being hotly debated.

Japan, France and Germany oppose mandatory capital add-ons.

Some regulators doubt bail-in bonds and contingent capital
— debt that converts into bank capital in times of trouble —
would work or if investors have the appetite for them.

“How can you price these instruments in the market if you
don’t know how the law treats unsecured creditors to start
with?” Draghi told reporters.

A source involved in the G20 discussions expects the Seoul
summit to agree on continuing talking until the end of next year
as time was needed to determine how systemically important each
bank is — “its SIFIness” — before taking any suitable,
tailored national action.

“It will take a year to follow this process,” the source

With no speedy global deal on SIFIs in sight, countries like
Switzerland are already pushing ahead with insisting that its
big banks hold extra capital, with others like Britain expected
to follow suit.

The FSB said it would “peer review” G20 countries to make
sure they take effective and consistent steps on SIFIs but
mentioned no timeline.

FSB still to finalise steps for big banks [ID:nTOE69J086]

EU blueprint for closing failing banks [ID:nLDE69J1QQ ]

PDF on Basel III, reshaping regulation [ID:nSGE69E0EA]

The Basel Committee of global banking supervisors and
central bankers met in Seoul on Tuesday and said its work on
detailing capital surcharges, bail-in bonds and contingent
capital would not be completed until the middle of next year.

And there are doubts that effective resolution mechanisms
can be created for big cross-border banks which dominate the

“Many changes in national laws would be required because
without basic changes in basic laws about insolvency … it
makes it very difficult to have a global resolution regime for
these cross border institutions,” European Central Bank Vice
President Vitor Constancio told reporters.

“An attempt is being made of course … but because the
system is very demanding I don’t know if it is really possible,”
Constancio said.

Too many of banks remain too big to manage and consequently
too big to resolve, said Sony Kapoor, head of London think tank
Re-define. “In their current form, too many large EU banks are
effectively resolution proof,” he said.


The European Union’s executive European Commission published
policy ideas for a crisis management framework ahead of
legislation next year. They included resolution mechanisms,
tougher supervision and making creditors take a hit.

EU Internal Market Commissioner Michel Barnier said he
wanted to instill a “culture of prevention”.

“I call this the most pressing and important reform we are
involved in. Our work is in parallel to international ongoing
efforts and work,” Barnier told a news conference.

The “polluter” and not the public should pay for future bank
rescues, Barnier said.

“The shareholders and creditors will be on the front line
and not the taxpayers,” Barnier said.

He is already seeking consensus among EU states to set up
national resolution funds from levies on banks.

Britain, which has spent billions of pounds shoring up its
banking sector in the crisis said it would push ahead with its
permanent levy plan and publish draft legislation on Thursday.

“Our aim is to extract the maximum sustainable tax revenues
from financial services,” British Finance Minister George
Osborne told the UK parliament.
(Additional reporting by Marc Jones in Frankfurt, Noriyuki
Hirata and Taiga Uranaka in Tokyo; Writing by Huw Jones, editing
by Mike Peacock; Ron Askew)

WRAPUP 2-Too big to fail bank plans stretch into 2011