The UBS bank analysts for Australasia, Jonathan Mott and Adam Lee, have examined the 'too big to fail' concept, and the proposals among G20 regulators for a senior debt holders' bail-in, from an Australian perspective.At the pointy end of the too big to fail debate, regulators in G20 jurisdictions have been pushing the very largest Global Systemically Important Banks (G-SIBs) to hold enough "bail-inable Gone-concern Loss Absorbing Capital" (GLAC) to recapitalise critical banking functions if there was a bank failure. Proposals for the structure and quantum of GLAC requirements are due late this year. Yet, as UBS noted, "while none of the Aussie majors are G-SIBs, they will likely be competing against GLAC-compliant banks in wholesale funding markets," and trying to explain that "Australia's unique circumstances" should be taken into account.By this, UBS means that Australia's very concentrated financial system and cross holdings of debt securities between banks would make bailing-in senior debt "unworkable" as, if one bank was put under financial duress and was forced to bail-in debt holders, the risk of "contagion losses" spreading to other institutions is high. There are also implications in these circumstances for banks' abilities to roll short term funding and therefore their willingness to lend. "Such a loss of confidence is the very risk the Financial System Inquiry is aiming to avoid," said UBS. "Put simply, we believe the risks associated with statutory bail-in of senior debt make it untenable in Australia."The analysts said this situation was comparable to the way Australia's regulators coped with the Basel III Liquidity Coverage Ratio (LCR) proposals, where the shortage of Government debt securities forced Australia to create a local solution - the RBA's Committed Liquidity Facility (CLF). "We believe a similar 'Australian solution' appears likely to meet GLAC resolution proposals. This was highlighted by both the RBA and APRA submissions to the Financial System Inquiry, specifically a "bail-in by business transfer," UBS said. "Further, if an 'Australian Resolution Solution' is adopted, sufficient GLAC could be made up of stronger levels of CET1, hybrids and Tier 2 sub-debt, therefore avoiding a statutory bail-in regime for senior debt. "This would also serve to reduce the probability, as well as the impact of a potential bank failure," they said. By way of a real-world example, UBS pointed to the treatment of Banco Espirito Santo, considered an important institution in the Portuguese banking system. By August this year, due to questionable transactions, the bank had run up major losses.  To close down the risk of contagion, the Bank of Portugal ordered a "bail-in by business transfer".  The problem loans, shareholders' funds and subordinated debt were left in a "Bad Bank" and the remaining assets and liabilities were moved to a "Novo Banco" (or "New Bank") along with senior debt, and given a short-term capital injection from the government. This insulated senior debt holders from losses. UBS surmised this model would be a workable option under APRA's rules, especially given its powers for compulsory transfer of business.However, UBS also warned that,