By Huw Jones
LONDON, Feb 3 (Reuters) - The world's 30 biggest banks willhave to issue more than $500 billion in bonds to comply withproposed global rules aimed at shielding taxpayers from the riskof future banking failures, credit rating agency Standard &Poor's (S&P) said on Tuesday.
Leaders of the Group of 20 economies (G20) have proposedthat 30 so-called globally systemic banks (G-SIBs) such asGoldman Sachs, HSBC and Societe Generale should hold a buffer of bonds equivalent to between 16and 20 percent of their risk-weighted assets such as loans,perhaps by 2019.
The proposal was agreed in principle at a G20 summit lastNovember, with a Feb. 2 deadline for consultation on the detail.Banks have cautioned the buffer could make it harder for them tolend to the economy and the G20 has not so far put a figure onthe likely scale of the implied debt issuance.
The G20 plan is seen as the last major regulatory measure totackle too-big-to-fail banks, whose scale effectively meansgovernments have no alternative to stepping in if they hitproblems, forcing regulators to impose particularly toughsafeguards in the hope of avoiding the havoc wreaked by thefailure of Lehman Bros in 2008.
S&P said adequate disclosure will be needed to giveinvestors confidence to buy the bonds, which are similar to the"co-co" bonds which some banks have already issued and which are"bail-inable", or convert into equity under certaincircumstances, thus injecting funds to recapitalise a lender orat least keep its vital bits going.
S&P said the 30 banks will need to issue the bonds, dubbed"total loss absorption capacity" or TLAC bonds, in the next fourto five years.
S&P is itself consulting on how TLAC will influence how itrates banks, who have already tapped investors for billions ofdollars to boost their finances in the face of increasedregulatory scrutiny.
Too-big-to-fail banks have enjoyed cheaper funding due tothe belief they won't be allowed to collapse, but this boost isbeing eroded as new regulation like TLAC is phased in.
The $500 billion estimate is based on the lower end of the16 to 20 percent range and would be double this sum if the upperrange was imposed.
The 16 G-SIBS based in Europe account for three quarters ofthe estimate, S&P said.
"We believe the proposed minimum TLAC requirements wouldhave been enough to cover the government-funded recapitalisationneeds of G-SIBs in the recent crisis and that they have beencalibrated to instil market confidence," S&P said. (Editing by David Holmes)
HSBC Holdings (HSBA)