Large banks must hold much more capital, Financial Stability Board says

The world's biggest banks will be required to further increase the amounts of capital they hold, increasing their total loss-absorbing capacity (TLAC) in a bid to avoid a repeat of the situation that led to the collapse of Lehman Brothers in 2008.

The Financial Stability Board, the international body created in the aftermath of the last financial crisis, said the world's 30 most systemically important lenders will need to hold capital buffers equivalent to at last 16% of their risk-weighted assets in 2019, rising to 18% by 2022.

A so-called leverage ratio will also be imposed, increasing to 6% at first and then rising to 6.75%.

The new funding requirements left lenders facing a shortfall of between £326.5bn (€457bn) and £786bn (€1.1trn), according to the findings of the FSB, with four Chinese banks making up the bulk of this.

If these four were excluded, then the need for additional capital would drop to between £76.44bn (€107bn) and £554.4bn (€776bn).

The global watchdog, chaired by Bank of England governor Mark Carney, believed the new rules would make a repeat of the collapse of Lehman Brothers - with the implied risks for the world's financial system - less likely as banks' creditors would know they would face losses in such an event and act accordingly to impose financial discipline.

As of the end of 2014 the FSB calculated banks in the developed world were at 14.1% TLAC.

Some market commentary linked Monday's advance in London-listed financial stocks to remarks from Governor Carney that no new major overhaul of bank capital reforms was underway.

There have been some worries in markets about the potential for a new round of regulations dubbed Basel IV.