WHEN big banks fail, taxpayers usually foot the bill. For instance, since the most recent financial crisis, British taxpayers alone have provided around £1.2 trillion ($1.9 trillion) worth of support to banks. Governments and their citizens around the world are understandably keen that this does not happen again. In response to this pressure, on November 10th the Financial Stability Board (FSB), an international group of regulators, announced proposals that Mark Carney, the governor of the Bank of England, says will end the risk to the public purse from bank failures.
Under the proposals—named “Total Loss-Absorbing Capacity” (TLAC)—big banks will have to fund themselves with loss-absorbing capital equal to 16-20% of their risk-weighted assets. This capital includes both shareholders’ equity and some convertible securities (capital that is raised as debt, but converts into shares when a bank enters financial difficulties). In reality, when TLAC comes into force by 2019, banks will need slightly more capital than the new rules prescribe due to the extra “buffers” demanded by the Basel Committee on Banking Supervision, another international regulator.