The Financial Stability Board (FSB) published a report that takes stock of progress in implementing the FSB resolution policies and enhancing resolvability across the banking, financial market infrastructure, and insurance sectors. Overall, the report finds that progress toward resolvability has been significant; however, the recent evaluation of the “too big to fail” reforms found that a number of gaps need to be addressed to fully realize the benefits of the resolution reforms. The report also sets out the priorities of FSB in the resolution area going forward. This year’s report commemorates the tenth anniversary of the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions.
In addition to the gaps in the area of "too big to fail," the report finds that digital innovation is giving rise to new challenges for resolution planning, including in relation to the reliance on third-party service providers and cloud services, and to the need to assess resolvability of non-traditional market participants. The report highlights that work is underway to build-up external total loss-absorbing capacity (TLAC) for four emerging market economy global systemically important banks (G-SIBs) that are due to comply with the TLAC standard by January 2025. All other G-SIBs report that they already meet or exceed the final TLAC requirement. Not all G-SIBs consistently disclose information on internal TLAC. Below are the key highlights of the FSB work priorities for the banking sector:
- Conduct further analysis on issues identified as part of the “road test” carried out by Crisis Management Groups on unallocated TLAC resources and discuss potential further issues relating to form, location, and approach to deployment of unallocated TLAC resources; monitor (external/internal) TLAC issuance on the basis of public disclosures; report on both these activities by end-2022 (as part of the 2022 Resolution Report)
- Discuss and share authorities’ practices on resolution planning for banks other than G-SIBs that could be systemic in failure and consider whether further work should be undertaken to support authorities’ resolution planning; report progress on this by end-2022 (as part of the 2022 Resolution Report)
- Discuss and share authorities’ practices on specific technical and cross-border issues of bail-in, including on cross-border recognition of related resolution actions; report progress by end-2022 (as part of the 2022 Resolution Report), in addition to shortly publishing a practices paper that summarizes the cross-border issues that remain to be addressed, particularly in relation to funding in resolution and bail-in execution.
- With respect to the continuity of access to financial market infrastructure for banks in resolution, support implementation of the FSB Guidance through further engagement with financial market infrastructure service providers and firms on information exchange and communication protocols; report progress on this by end-2022 (as part of the 2022 Resolution Report)
- Consider whether further guidance is needed on public disclosures on resolution planning and resolvability by firms; report findings by end-2022 (as part of the 2022 Resolution Report)
- Conduct eighth Resolvability Assessment Process for G-SIBs and report high-level findings by end-2022 (as part of the 2022 Resolution Report)
- Share members’ practices on home-host coordination and cooperation arrangements, playbooks, and exercises to test these arrangements; report findings by end 2023 (as part of the 2023 Resolution Report)
- Investigate further obstacles for example, legal, regulatory, and operational) to cross-border funding in resolution, including in regard to the ability to mobilize collateral across borders; report findings by end-2023 (as part of the 2023 Resolution Report)
- Share experiences and lessons learned and explore potential challenges on post-resolution issues, including legal and operational ones; report findings by end-2023 (as part of the 2023 Resolution Report)
In the insurance sector, progress on resolution reforms and resolution planning implementation has been mixed. As in prior years, some jurisdictions have identified systemically important insurers and/or internationally active insurance groups. Work on resolution planning and resolvability assessments for these institutions has started or is underway. FSB will soon publish two papers that present practices regarding financial and operational interconnectedness in resolution planning and funding in resolution.
Keywords: International, Banking, Insurance, Securities, FMI, Resolution Framework, Crisis Management Framework, Resolution Planning, Resolvability Assessment, Too-Big-To-Fail, TLAC, Regulatory Capital, Basel, G-SIBs, Systemic Risk, Financial Stability, Work Priorities, FSB
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