Featured Product

    FSB Report Examines Success of Too-Big-to-Fail Reforms for Banks

    March 31, 2021

    FSB published the final report on evaluation of the effects of too-big-to-fail reforms for systemically important banks. The evaluation examines the extent to which the reforms have reduced the systemic and moral hazard risks associated with the systemically important banks and explores the broader effects of these reforms on the financial system. The evaluation revealed that the too-big-to-fail reforms have reduced moral hazard and systemic risk without material side-effects, though certain gaps still need to be addressed.

    The reforms within the scope of the evaluation include standards for additional loss absorbency through capital surcharges and total loss-absorbing capacity (TLAC) requirements, recommendations for enhanced supervision and heightened supervisory expectations, and policies for effective resolution regimes and resolution planning to improve the resolvability of banks. These reforms were endorsed by G20 leaders after the 2008 financial crisis, as part of a wider package of reforms intended to enhance global financial stability and support the economy. The evaluation found that the too-big-to-fail reforms have made banks more resilient and resolvable. Indicators of systemic risk and moral hazard risks have moved in the right direction, suggesting that market participants view these reforms as credible. Increased bank resilience and greater market discipline have been tested by the COVID-19 pandemic. So far, banks have been able to absorb the shock. The evaluation of too-big-to-fail reforms have identified the following development areas:

    • Resolution reforms should be implemented in full to enhance the feasibility and credibility of resolution, thus minimizing the need for state support of failing banks. This includes further work to enhance the resolvability of systemically important banks.
    • Scope exists for improvement of public disclosures of information on resolution frameworks and funding mechanisms, the resolvability of systemically important banks, and other resolution-related actions.
    • Information may be needed for public authorities to assess the potential impact of resolution actions (such a bail-in) on the financial system and the economy.
    • Application of these reforms to the domestic systemically important banks warrants further monitoring.
    • Risks arising from the shift of credit intermediation to non-bank financial intermediaries should also continue to be closely monitored.

    Closing these gaps should continue to be a priority in the current environment. There is still a high degree of uncertainty about the evolution of the pandemic and the economic outlook as well as their effects on the financial system. Non-financial firms have taken on additional debt. A deterioration in the credit quality of these non-financial borrowers could increase the likelihood of loan defaults, causing losses for banks. Having robust banks and a mechanism to resolve them in the event of failure is key to maintaining the stability of the financial system. This final report reflects public feedback received on a consultative version of the report, which FSB published in June 2020. It contains analytical updates using market data covering the period since the outbreak of COVID-19 as well as more extensive description of issues raised during the consultation.

     

    Related Links

    Keywords: International, Banking, Too Big to Fail, Basel, Bail In, Systemic Risk, TLAC, G20, Regulatory Capital, D-SIBs, FSB

    Featured Experts
    Related Articles
    News

    APRA Finalizes Guidance on Management of Climate Change Risks

    The Australian Prudential Regulation Authority (APRA) released the final Prudential Practice Guide on management of climate change financial risks (CPG 229) for banks, insurers, and superannuation trustees.

    November 26, 2021 WebPage Regulatory News
    News

    European Council Adopts Position on Digital Finance Package Proposals

    The European Council adopted its position on two proposals that are part of the digital finance package adopted by the European Commission in September 2020, with one of the proposals involving the regulation on markets in crypto-assets (MiCA) and the other involving the Digital Operational Resilience Act (DORA).

    November 25, 2021 WebPage Regulatory News
    News

    PRA Proposes Rulebook Changes; BoE Extends BEEDS Testing Window

    The Prudential Regulation Authority (PRA) is proposing, via the consultation paper CP21/21, to apply group provisions in the Operational Resilience Part of the PRA Rulebook (relevant for the Capital Requirements Regulation or CRR firms) to holding companies.

    November 25, 2021 WebPage Regulatory News
    News

    EC Proposes New Measures Under Capital Markets Union Package

    The European Commission (EC) has adopted a package of measures related to the Capital Markets Union.

    November 25, 2021 WebPage Regulatory News
    News

    EBA Publishes Standards to Calculate Risk-Weights of CIUs Under CRR

    The European Banking Authority (EBA) published the final report on draft regulatory technical standards for the calculation of risk-weighted exposure amounts of collective investment undertakings or CIUs, in line with the Capital Requirements Regulation (CRR).

    November 24, 2021 WebPage Regulatory News
    News

    FED Outlines Lending Conditions and Supervisory Activities in H1 2021

    The Board of Governors of the Federal Reserve System (FED) published a report that summarizes banking conditions in the United States, along with the supervisory and regulatory activities of FED.

    November 24, 2021 WebPage Regulatory News
    News

    APRA Expects Boards to Strengthen Ability to Oversee Cyber Resilience

    The Australian Prudential Regulation Authority (APRA) recently completed two pilot initiatives in its 2020-2024 Cyber Security Strategy, which was published in November 2020.

    November 23, 2021 WebPage Regulatory News
    News

    FSB Updates List of Global Systemically Important Banks

    The Basel Committee on Banking Supervision (BCBS) published further information related to its 2021 assessment of global systemically important banks (G-SIBs), with additional details to help understand the scoring methodology.

    November 23, 2021 WebPage Regulatory News
    News

    FASB Proposes Improvements to Credit Losses Standard

    The Financial Accounting Standards Board (FASB) is consulting on an Accounting Standards Update and the associated taxonomy improvements for requirements on troubled debt restructurings and vintage disclosures under the credit losses standard (for financial instruments) topic 326.

    November 23, 2021 WebPage Regulatory News
    News

    US Agencies Issue Statement on Crypto-Asset Policy Initiatives

    US Agencies issued a statement that summarizes the work undertaken during the interagency policy sprints focused on crypto-assets and provides a roadmap of future work related to crypto-assets.

    November 23, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 7733