FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions and sets out plans for further work. The report also presents the status of implementation of aspects of bank resolution regimes by FSB jurisdictions, along with the planned actions and timelines going forward. The report reveals that significant progress has been achieved; however, progress is uneven across reform areas and sectors and there is need to be mindful of remaining gaps. The report concludes that authorities and firms need to be mindful of the remaining gaps as they work toward making resolution strategies and plans operational in all sectors.
This report, which has been prepared by the FSB Resolution Steering Group or ReSG, is the eighth report on the implementation of resolution reforms. It takes stock of progress made by FSB members in implementing reforms and summarizes findings from the monitoring of resolvability across the banking, insurance, and financial market infrastructure sectors. It discusses progress in implementing the resolution policies of FSB for banks, insurers, and central counterparties or CCPs. It also examines the initiatives in monitoring implementation and evaluating the effects of resolution reforms and presents actions and timelines going forward. Annex 1 to the report presents the status of implementation of aspects of bank resolution regimes by FSB jurisdictions, as of September 2019. The status is based on self-reporting by national authorities. The availability of legal frameworks and regimes in jurisdictions does not mean that resolution will necessarily be effective, nor does the absence of such powers necessarily mean that a jurisdiction will not be able to achieve an effective resolution.
With respect to the banking sector, the report highlights that global systemically important banks have been made more resolvable through the build-up of total loss-absorbing capacity, or TLAC, and other measures. Notwithstanding this progress, challenges remain. Authorities need to determine the appropriate balance between group-internal distribution of Total loss-absorbing capacity and non-pre-positioned resources. Furthermore, access to temporary liquidity in relevant currencies and in adequate amounts when and where needed is critical for firms going through resolution and requires ex ante preparation by firms and authorities.
In the insurance sector, over the past year, two jurisdictions (Netherlands and Singapore) have introduced or strengthened powers to resolve insurers. Resolvability monitoring highlighted the challenges stemming from group-internal interconnectedness. Ongoing work on resolution planning focuses on intragroup funding, intragroup reinsurance, centralized cash pooling, intragroup guarantees, and operational interconnections. Additionally, work on resolution funding encompasses temporary sources of funding and interactions with any existing policyholder protection schemes, information-sharing, and communication.
A policy priority for the FSB is the further strengthening of the resilience and resolvability of central counterparties. The continuing work on financial resources and tools to support orderly resolution will lead to further guidance, on which the FSB will publicly consult during the second quarter of 2020. FSB is developing this guidance in consultation with CPMI and IOSCO. This work draws on the experience of authorities and Crisis Management Groups in assessing the quality and quantity of resources for resolution and on the comments received from stakeholders in response to the public consultation. The future guidance should help authorities and Crisis Management Groups in adopting a structured process for evaluating the adequacy of resources to support resolution on a CCP-specific basis and, if necessary, addressing the need for any additional resources considering a reasonable range of scenarios. It should also assist authorities and Crisis Management Groups in their analysis of the treatment of central counterparty equity.
Keywords: International, Banking, Insurance, Securities, FMI, CCPs, Resolution Regime, Resolution Framework, Crisis Management, Systemic Risk, SIFI, FSB
Sam leads the quantitative research team within the CreditEdge™ research group. In this role, he develops novel risk and forecasting solutions for financial institutions while providing thought leadership on related trends in global financial markets.
Previous ArticleFASB Publishes Summary of Emerging Issues Task Force Meeting
EC published Regulation 2021/25 that addresses amendments related to the financial reporting consequences of replacement of the existing interest rate benchmarks with alternative reference rates.
BIS published a bulletin, or a note, that examines the cyber threat landscape in the context of the pandemic and discusses policies to reduce risks to financial stability.
HM Treasury, also known as HMT, has updated the table containing the list of the equivalence decisions that came into effect in UK at the end of the transition period of its withdrawal from EU.
EBA published an erratum for technical package on phase 1 of the reporting framework 3.0.
APRA updated a frequently asked question (FAQ), for authorized deposit-taking institutions, on the measurement of credit risk weighted assets.
EBA published the quarterly risk dashboard, along with the results of the Risk Assessment Questionnaire survey among 60 banks and 15 market analysts.
ECB concluded the public consultation on the introduction of a digital euro in EU.
ECB published a guide that sets out the supervisory approach to consolidation in the banking sector.
The SRB Chair Elke König published an article setting out work priorities for 2021.
FDIC has selected 11 technology companies—including BearingPoint, Fed Reporter, Inc, and S&P Global Market Intelligence, LLC—for inclusion in the third and final phase of the rapid prototyping competition.