FSB Consults on Solvent Wind-Down of Trading Portfolios of G-SIBs

The paper discusses the concept of "solvent wind-down" and "wind-down planning," the relevant capabilities of firms, the evaluation or verification of firm capabilities, and coordination among home and host authorities. Solvent wind-down means that all claims are paid in full and all obligations are met in connection with the derivatives and trading book portfolio that is wound-down in a timely and measured manner. Solvent wind-down analysis explores options for how the exit from such positions could be managed as part of a recovery or a resolution. This discussion paper draws on the practices that are emerging in some jurisdictions and describes, subject to eventual specific requests by supervisory and/or resolution authorities, capabilities and arrangements that may need to be put in place to ensure a solvent wind-down plan can be effectively executed. 

The paper highlights that solvent wind-down work in some jurisdictions is more advanced than in others (for example, in certain jurisdictions, firms have been requested to develop solvent wind-down plans based on guidance prepared by authorities). The focus of the discussion paper is on the wind-down of G-SIBs’ derivatives and trading book activities as opposed to other activities or assets (for example, loan portfolios). This focus is important because of the unique complexity and cross-border nature of derivatives and trading book activities and the potential financial stability risks that may stem from a disorderly wind-down of these activities. Hence, a clear strategy for winding down portfolios of financial instruments in an orderly and controlled manner may be needed as part of recovery and resolution plans of G-SIBs, then assessed in the context of supervisory reviews and resolvability assessments. This discussion paper should not be viewed as proposed guidance; rather, the responses to the public consultation will be considered to determine whether the development of guidance would be useful.

Related Links

• Press Release
• Discussion Paper (PDF)

Comment Due Date: August 02, 2019

Keywords: International, Banking, Securities, Resolution Planning, G-SIB, Solvent Wind-Down, Derivatives, Recovery and Resolution, Trading Book, Systemic Risk, Financial Stability, FSB