BIS crafts mega-bank re-capitalization plans

The Bank of International Settlements (BIS) has a reputation as being the "central banks' central bank." Its role as impartial steward and advisor to the global financial system has never been truly defined, yet it wields considerable influence in matters regarding the health of banks and the future of central banking, as shown through the implementation of industry standard capitalization levels known as the Basel system. 

According to Reuters, the organization released its long-promised guidelines for emergency re-capitalization of a systemically important bank. These institutions include Goldman Sachs, JPMorgan Chase and other similarly sized groups. The need for such regulations was made all too apparent during the 2008 financial crisis and subsequent global recession, and since that period global authorities have been trying to come up with ways to prevent another market collapse like the one that followed the bankruptcy of Lehman Brothers.

The BIS plan utilizes a structure that could have been directly applicable to Lehman, as it follows a timeline over the course of a single weekend. This concept is ostensibly designed to curtail a negative market reaction on a Monday if bad news about a particular mega-bank was published on the preceding Friday. 

Under the resolution, the bank in question would be immediately restructured as a holding company, and its sellable assets would be parceled off to draw up funds to settle creditors. Subordinated debt would be written off completely while unsecured creditors, both junior and senior, would suffer some losses. Senior secured debt would remain protected depending on the circumstances. The idea, the BIS reported, is to give the bank enough strength to survive any economic turbulence that would surely follow the market's reopening.

The existence of this plan and the fact that financially flawed banks would still be allowed to carry on with their business in some way is yet another reason for investors to pursue their own paths. Independence-oriented assets like cash flow real estate and IRAs are useful tools, especially for those approaching retirement. Download our Free Game Plan today to learn more.