When Lehman Brothers collapse in 2008, it created a global economy setback. Global financial authorities work hard to prevent it from recurring. Now, they introduced new rules for the world's biggest banks to increase their cash reserve and avoid taxpayers bailouts.
Bloomberg reported that Financial Stability Board published a rule of total loss-absorbing capacity (TLAC) to ensure giant lenders are able to be wound down and recapitalized in an orderly way without taxpayer bailouts. Under TLAC, banks that listed in the most systemically important banks must have liabilities and instruments "readily available for bail in." Richard Barfield, a financial-services risk and regulation director at PricewaterhouseCoopers LLP., told Bloomberg that "TLAC is one of the last bricks in the wall of the post-crisis reform agenda,".
Financial Stability Board is an association established in 2009 as successor of Financial Stability Forum, consisting of finance ministers, central banks and international financial bodies. It was endorsed by Heads of State and Government of the Group of Twenty (G-20) with key role in promoting the reform of international financial regulation and financial stability. Its main tasks is to conduct vulnerabiltiy assessemt, policy development, coordination, and implementation monitoring.
Last week, FSB issued a new updated list of 2015 global systemically important banks (G-SIBs). According to CNN Money, banks around the world have grown even bigger since the 2008 financial crisis, but they have also become less risky in many ways.The FSB list 30 banks and broken up into five buckets based on their risks level. Although there are no banks in the level 5 of warning zone. JPMorgan and HSBC are in the level 4 category, or yellow flag. The rest of the banks are in the lower levels.
HSBC is a British bank founded in 1865 in the British colony of Hong Kong and now is the fourth largest bank with total asset of $2.67 billion and market capitalization of $160.4 billion. While JPMorgan Chase is American multinational bank and the largest bank in United States. With total asset of $2.6 billion and market capitalization of $230.6 billion, JPMorrgan Chase is the fifth largest bank in the world.
According to Wall Street Journal the rules is aimed at stopping banks from becoming "too big to fail." TLAC could force the world's largest lenders to raise as much as $1.19 trillion by 2022 in debt or other securities that can be written off when winding down failing banks.
In order to prevent Lehman Brothers collapse, preventive measures must be taken for global banks. Seven years ago, Lehman Brothers, who was then fourth largest investment bank in United States went bankrupt, causing shock in global economy. In the aftermath, global financial authorities worked for years to formulate preventive measures to disallow such incident happen again. Financial Stability Board now published its rule of TLAC or total loss-absorbing capacity for world largest banks to enforce them raising their cash reserve.
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