The Financial Stability Board, a global banking watchdog, proposed Monday new rules that would push mega-banks to double their financial buffers in order to shield economies and taxpayers if they collapse.
The proposed rules are "a watershed in ending 'too big to fail' for banks," said Mark Carney, FSB chairman and head of the Bank of England.
The new regulations are meant to help avoid a repetition of the 2008 crisis sparked by the Lehman Brothers collapse, which shook the global financial sector to its core.
Numerous governments had to step in and save other large banks from tanking and dragging down entire economies in the process.
"Once implemented, these agreements will play important roles in enabling globally systemic banks to be resolved without recourse to public subsidy and without disruption to the wider financial system," Carney said in a statement.
Mega-banks, sometimes managing more than the total gross domestic product of the country hosting them, know that governments have no choice but to bail them out if they get into trouble.
"The knowledge that this can happen encourages (them) to take excessive risks and represents a large implicit public subsidy of private enterprise," the FSB said.
To avoid such risk-taking at taxpayers' expense, FSB wants 30 such giant lenders, including UBS, Citigroup and HSBC, to increase their capital reserves to at least 16 to 20 percent of their risk-weighted assets.
Certain debt and bond instruments can also be used to fulfil the requirements.
The move was met with applause from Britain and Germany, home to several of the world's biggest banks.
"The Financial Stability Board's focus on ensuring that even large banks can be wound up without cost to taxpayers and without disruption to the economy is essential," said Andrew Tyrie, who heads the British parliament's treasury committee.
"Only when these reforms are tested by experience will it be clear whether they are enough," he added.
- A Herculean task -
A German government source meanwhile said FSB had set out on "a Herculean task, but one that is unavoidable if we are to take the protection of taxpayers seriously."
Berlin would prefer to see the draft rules, which are under consultation, introduce buffer capital requirements closer to 20 percent than 16 percent, the source said, insisting: "there more there is, the more it will help."
In the wake the 2008 crises global banking regulations were already tightened.
But the new rules, which are not set to take effect before 2019, more than double the amount of financial buffers big banks are required to have under the so-called Basel III requirements that are gradually being phased in.
Basel III requires big lenders to hold a capital cushion of at least 7.0 percent of the total risks they are carrying, with banks considered "too-big-to-fail" required to keep an additional cash stash of at least 2.5 percent.
National regulators will also be able to slap additional buffer requirements on top of the FSB rules, once they take effect, Eva Hupkes, an advisor at the global banking regulator, told AFP.
The FSB has called for public input on the rules until February 2, and plans along with the Basel Committee on Banking Supervision and the Bank for International Settlements to conduct comprehensive impact assessment studies.
They will among other things study what impact the new rules would have on the banks' viability and on their lending capacity.
Some of the banks likely already have the necessary capital cushions, while others may need to restructure their businesses or scramble to build up the required buffer, Hupkes acknowledged.
Due to the heavy burden the rules could initially place on banks and surrounding markets, institutions headquartered in emerging markets will not initially be subjected to them, the FSB said.
Industry body the British Bankers' Association also applauded the FSB proposals as an important step, but warned the proposal was "complex" and welcomed that their impact would be studied.
The final draft of the rules should be completed in time for a summit of G20 leaders at the end of 2015, the FSB.