By Eyk Henning
New international regulations should discourage banks from
buying other banks' loss-absorbing debt so a failure at one won't
spread through the financial system, a senior German central banker
said in Washington Tuesday.
Andreas Dombret, member of the executive board of the German
Bundesbank, made the comments in a speech at the annual meeting of
the International Monetary Fund. His comments came as part of a
broader push by European and international banking regulators for a
new form of bonds that work to prevent another financial crisis
similar to the one in 2008.
The effort could force some banks to issue billions of dollars
of a special type of debt capital that would absorb losses in a
crisis.
"Within the framework of the Financial Stability Board, work is
ongoing at the global level to define a minimum standard on
liabilities in terms of both quality and quantity that are eligible
for bail-in," Mr. Dombret said. He added that banks should be
discouraged from buying other banks' bonds to avoid contagion in
case of a bank failure.
Recent media reports suggested that the Financial Stability
Board, one of the regulators, will call for the largest global
banks to have total loss-absorbing capital of 16% to 20% of their
assets, adjusted for the riskiness of those assets. That would be
more than twice the level that stricter European banking rules,
dubbed Basel III, requires banks to withhold.
Banking investors and analysts are trying to assess the impact
of potential new rules after long preparation.
"The market has been awaiting finalization of minimum debt
requirements for over two years," analysts from Barclays said in a
research note last week. "We believe the reported range [of 16% to
20%] is above what most market participants had been expecting and
may lead to material incremental new issuance for several" large
global banks.
Barclays predicted the banks that will be forced to issue the
most debt are Wells Fargo, at $55 billion; J.P. Morgan, at $52
billion; and Citigroup, at $13 billion.
In Europe, the analysts predicted levels of as much as $49
billion in new debt for HSBC, $43 billon for Santander and $16
billion for BBVA.
Hans Bentzien contributed to this article.
Write to Eyk Henning at eyk.henning@wsj.com