The world's biggest banks agreed to rewrite trillions of dollars of financial contracts as the industry responds to pressure from regulators to help make sure lenders can fail without bringing down the global economy.
The contracts help lubricate the workings of the global financial system, governing securities financing transactions and derivatives trades. The new protocol, drawn up by the International Swaps and Derivatives Association and three other industry groups, will allow agreements between the signatory banks to remain intact for a period after a bank fails, ISDA said in a statement today.
The goal is to prevent a recurrence of the messy bankruptcy of Lehman Brothers Holdings Inc. in 2008, which helped trigger a global economic slump. The protocol will complement regulators' efforts to solve the problem of too-big-to-fail banks, including the total loss-absorbing capacity rules announced by the Financial Stability Board this week. Group of 20 leaders are set to endorse the TLAC rules at a summit next week.
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