The Bank of England has given banks an extra two years to comply with new rules that are intended to avoid a repeat of the taxpayer bailouts needed during the financial crash.
Setting out regulations about the shares and bonds banks must hold to absorb losses, Threadneedle Street said they would have until 2022, rather than 2020, to build up their buffers.
Since 2008, regulators around the world have been trying to find ways to make banks safe during a crisis without recourse to the taxpayer and the latest rules from the Bank are part of a package of measures intended to avoid bailouts.
Mark Carney, the governor of the Bank of England, said: “This policy is a significant milestone on the journey to end ‘too big to fail’ in the UK.”
The aim, he said, was to “ensure that banks that provide essential economic functions hold sufficient resources to be resolved in an orderly way, without recourse to public funds, and whilst allowing households and businesses to continue to access the services they need.”
The rules will apply to banks that have more than 80,000 accounts – double the number first suggested by the Bank of England – which means some of the smallest lenders will not need to comply.
The Bank of England said institutions were already holding several times more capital than they did before the crisis and were subjected to annual stress tests. The next results will be published at the end of the month.
The latest rules “represent one of the last pillars of post-crisis reforms designed to make banks safer and more resilient, and to avoid taxpayer bailouts in future”.
The Bank added: “These requirements will make it possible to resolve failing banks by ensuring that they hold sufficient equity and debt to absorb losses. It will enable the recapitalisation of businesses that need to keep operating during the process because they provide important financial services to households and businesses. This process is called ‘bail-in’.”
The rules relate to what is known as minimum requirement for own funds and eligible liabilities (MREL) – part of an EU directive.
