UK banks will have two years longer to raise £20bn extra of special debt to prevent taxpayer bailouts, the Bank of England has said.
The BoE is writing to lenders to tell them of the individual levels of debt they can convert to equity should they collapse, forcing creditors and shareholders — rather than taxpayers — to be on the hook. The move — known as a “bail in” — is an attempt to end the “too big to fail” position of some banks.
The BoE final rules on so-called MREL — or Minimum Requirement for Own Funds and Eligible Liabilities — will make the largest UK banks and building societies create a complete level of bail-in-able debt by 2022 rather than by 2020, as planned a year ago. They will have to meet interim requirements by 2020.
By 2022, the special debt that lenders must hold will be the same as their normal minimum capital, equivalent to 18 per cent of assets by riskiness, or 6.75 per cent of all assets, the BoE said.
While in line with global standards, this is lower than the 8 per cent of total assets currently being considered by eurozone authorities.
The rules apply to lenders with balance sheets greater than £15bn. Lenders with fewer than 40,000 accounts will not have to raise this special debt and instead would be subject to normal insolvency rules if they failed, the BoE said.
Mid-size companies such as TSB and Clydesdale will have until 2020 to get their total MREL — which includes both normal capital and special debt — to 18 per cent of their assets when measured for risk, the BoE said.
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