Featured Product

    FSB Report Identifies Gaps in Too-Big-To-Fail Reforms

    June 28, 2020

    FSB published, for consultation, a report on evaluation of the too-big-to-fail (TBTF) reforms for systemically important banks. The evaluation examines the extent to which the reforms are reducing the systemic and moral hazard risks associated with systemically important banks, in addition to the broader effects of these reforms on the financial system. The consultation report also identifies the gaps in the resolution framework that still need to be addressed. Estimates of the social costs and benefits of the TBTF reforms and a Resolution Reform Index were also published. The response period for this consultation ends on September 30, 2020 while the final report is expected to be published in early 2021.

    The findings of the report suggest that TBTF reforms contributed to the resilience of the banking sector and its ability to absorb, rather than amplify, shocks. The reforms have made banks more resilient and resolvable. Major banks are much better capitalized, less leveraged, and more liquid than they were before the global financial crisis. Systemically important banks in advanced economies built up significant loss-absorbing and recapitalization capacity by issuing instruments that can bear losses in the event of resolution. Many FSB jurisdictions have introduced comprehensive bank resolution regimes and are carrying out resolution planning. This gives authorities a wide range of options for dealing with banks in stress, though the selection of options for use is up to the individual authorities, in light of the particular circumstances. Resolution planning and enhanced supervision have significantly improved the operational capabilities of banks and authorities, as well as the accuracy and detail of the information available to them. 

    Overall, the benefits of the reforms significantly outweigh the costs and no material negative side effects of the reforms have been observed. The report does not make specific policy recommendations; however, the evaluation identified gaps that still need to be addressed: 

    • The evaluation identified a number of areas where improvements to the resolvability of systemically important banks could still be made. These involve total loss-absorbing capacity (TLAC) implementation, resolution funding mechanisms, the valuation of bank assets in resolution, operational continuity and continuity of access to financial market infrastructure, and cross-border coordination.
    • State support for failing banks has continued. Only three systemically important banks have been resolved in recent years. However, public funds continue to be used to support small or medium-sized banks, even in jurisdictions with well-developed resolution frameworks. Since the few recent bank failures are characterized by very different circumstances, it is hard to draw broad conclusions, but there have been a number of cases of state support. 
    • There are opportunities to improve provision and availability of data and to consider the adequacy of current levels of transparency. The report suggests opportunities to enhance the credibility of reforms by enhancing disclosures of information related to the operation of resolution frameworks; the resolvability of systemically important banks, including TLAC; and the details of resolution actions after the event. There may also be gaps in the information available to public authorities and to FSB and standard-setters, which reduces their ability to monitor and evaluate.
    • The application of the reforms to domestic systemically important banks (D-SIBs) warrants further monitoring. Compared to G-SIBs, relatively little is published by national authorities and at the international level about D-SIBs’ characteristics or the regulations to which they are subject. More information and analysis, potentially drawing on the analytical tools developed in this evaluation, could be used to compare prudential measures for these institutions and explore how the reforms have been applied to them.
    • Risks arising from the shift of credit intermediation to non-bank financial intermediaries should continue to be closely monitored. The evaluation has not examined the implications for non-bank financial intermediaries, but the findings on the banking sector reinforce the importance of continuing work by  FSB and standard-setting bodies to assess vulnerabilities and develop policy recommendations designed to address related financial stability risks.

    The TBTF reforms being evaluated have three components: standards for additional loss absorbency through capital surcharges and total loss-absorbing capacity requirements; recommendations for enhanced supervision and heightened supervisory expectations; and policies to put in place effective resolution regimes and resolution planning to improve the resolvability of banks. The evaluation, which was conducted before the onset of the COVID-19 pandemic, draws on a broad range of information sources and is based on numerous empirical analyses and extensive stakeholder feedback. FSB has also published a technical appendix to the evaluation, which provides the detailed empirical evidence for the conclusions reached. The TBTF reforms were endorsed by G20 in the aftermath of the 2008 global financial crisis and have been implemented in FSB jurisdictions over the past decade. 

     

    Related Links

    Comment Due Date: September 30, 2020

    Keywords: International, Banking, Too Big to Fail, TBTF, Systemic Risk, D-SIBs, G-SIBs, Resolution Framework, FSB

    Featured Experts
    Related Articles
    News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News
    News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News
    News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News
    News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News
    News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News
    News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News
    News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News
    News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    News

    FCA Sets up ESG Committee, Imposes Penalties, and Issues Other Updates

    The Financial Conduct Authority (FCA) is seeking comments, until December 21, 2022, on the draft guidance for firms to support existing mortgage borrowers.

    December 20, 2022 WebPage Regulatory News
    News

    FSB Reports Assess NBFI Sector and Progress on LIBOR Transition

    The Financial Stability Board (FSB) published a report that assesses progress on the transition from the Interbank Offered Rates, or IBORs, to overnight risk-free rates as well as a report that assesses global trends in the non-bank financial intermediation (NBFI) sector.

    December 20, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8697