June 12, 2018

While speaking in Brussels, Dietrich Domanski, the Secretary General of FSB, examined the recent and expected developments in the area of recovery and resolution of banks. He outlined the work done globally in the area of resolution and recovery of large banks and emphasized that significant implementation work remains, both in EU and beyond, to operationalize resolution plans and make firms resolvable. He then focused on three remaining areas where additional efforts are needed—namely, implementing total loss-absorbing capacity (TLAC), bail-in execution, and funding in resolution.

With respect to TLAC, he highlighted that "We have seen good progress on the implementation of external TLAC. G-SIBs [Global systemically important banks] have issued substantial amounts of TLAC over the last few years and are generally on track to meeting both the 2019 and 2022 external TLAC requirements. However, the lack of consistent disclosures makes it difficult to compare external TLAC ratios across G-SIBs." FSB recently issued a call for public feedback as part of the review of the technical implementation of TLAC. The objective is to seek views from stakeholders on whether implementation is proceeding in a manner consistent with the TLAC standard. The review should help identify any technical issues or operational challenges in the implementation of the standard. Other key recent and planned activities of FSB are as follows:

  • FSB had launched a consultation on a set of Principles on Bail in-Execution in November of last year. Respondents to the public consultation expressed support for the guidance and its focus on the operational aspects of a bail-in. Some changes were suggested, notably to clarify the application of the guidance for different types of resolution strategies beyond bail-in and for different types of liabilities beyond TLAC. Changes were also suggested also to reinforce the expectation that the home authority takes overall responsibility for the valuation process. FSB hopes to reflect these points and others in the final principles, which is expected to be published in the coming weeks.
  • Additionally, last November, FSB consulted on guidance to support the development of plans for G-SIB funding in resolution. Many respondents welcomed the focus on firm capabilities and the operational aspects of a funding strategy. Several suggested that the guidance should consider ex ante disclosure of certain elements of the resolution funding frameworks, as well as how the authorities would communicate at the point of entry into resolution on the firm’s access to liquidity and its capacity to meet its obligations. FSB hopes to reflect these points in the final guidance which—as with the principles on bail-in execution—it expects to publish in the coming weeks.
  • FSB is carrying out work to analyze approaches to two other aspects of authorities’ resolution planning work. It is comparing approaches in FSB jurisdictions to the public disclosure of information on resolution planning and resolvability. The second area of further work at the FSB level is on trading book wind-down. The wind-down of trading book activity may form part of a restructuring plan for a firm in resolution. This work will take stock of the approaches taken across FSB jurisdictions and look at some of the operational aspects of an effective wind-down plan. FSB expects to report its findings on these two topics later this year.
  • FSB started work on a thematic peer review on the implementation of the Key Attributes, particularly in relation to elements on resolution planning. This peer review will be published in early 2019. FSB welcomes any comments by July 04, 2018.
  • FSB also plans to evaluate the effects of the reforms aimed at ending “too-big-to-fail." This evaluation will be conducted using the new FSB framework for post-implementation evaluation of the effects of the financial reforms. The key objective of the evaluation is to assess whether reforms have accomplished their objective, or whether there are any unintended consequences that may call for adjustments in regulation.

Mr. Domanski concluded that there have been significant efforts, in the area of recovery and resolution, to develop new legislative and regulatory approaches so that large systemically important financial institutions are no longer “too-big-to-fail." This progress has been possible not least because of the close cooperation of authorities—a degree of cooperation that simply did not exist before the crisis. However, in the end, the success of the efforts in the area of resolution will depend on proper implementation.

 

Related Link: Speech (PDF)

Keywords: International, Banking, Recovery and Resolution, Bail-in, TLAC, FSB

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