Bank giants agree to failure deal with regulators

THE largest lenders in the US, Europe and Japan have agreed to new procedures to help inoculate the global financial system.

THE largest lenders in the US, Europe and Japan have agreed to new procedures to help inoculate the global financial system against the failure of giant banks.

Executives of 18 large US, European and Japanese banks, meeting at the Federal Reserve in Washington, agreed in principle to wait up to 48 hours before seeking to terminate derivatives contracts and collect associated payments from a troubled financial institution.

The closed-door meeting included top banking executives, including Lloyd Blankfein of Goldman Sachs Group, Antony Jenkins of Barclays and Michael Corbat of Citigroup.

The delay will give regulators time to transfer a failing firm’s assets and some obligations into a new “bridge” company, removing the need to unwind derivatives contracts or undertake asset sales during times of turmoil.

The changes, pushed for by global regulators and set to go into effect in January, are aimed at helping to end the problem of dealing with “too-big-to-fail” banks that are so large and ­intertwined their collapse would threaten to trigger broad ­economic damage or market ­tumult. “This is about making the system safer,” said Scott O’Malia, chief executive of the Inter­national Swaps and Derivatives Association, a financial trade group that formulated the changes.

Banking regulators welcomed the agreement. In a joint ­statement, the Fed and the Washington-based Federal Deposit ­Insurance Corp, said they are­ “encouraged by this effort”.