FSB Report Examines Progress in Resolvability of Systemic Institutions
FSB published a report that examines progress in implementing policy measures to enhance the resolvability of systemically important financial institutions. The report highlights the need for resolution preparedness and discusses lessons learned from the COVID-19 pandemic, which confirmed the importance of ongoing work on resolvability for banks, insurers, and central counterparties (CCPs). The report concludes that improved capabilities for monitoring the financial condition of firms and for cooperation and communication in a crisis, although not yet perfect, have served authorities well.
In the banking sector, the sixth round of the resolvability assessment process conducted during 2019-2020 confirmed that crisis management groups are broadly satisfied with the progress of global systemically important banks (G-SIBs) toward resolvability. Global systemically important banks (G-SIBs) are estimated to already meet the final 2022 minimum external total loss-absorbing capacity (TLAC) requirement. TLAC-eligible bond issuance has continued through the difficult COVID-19 pandemic environment and the market has, so far, absorbed issuance without difficulty. Disclosure of external TLAC levels by G-SIBs has improved over the past year. However, little information is available to market participants on the distribution of TLAC within banking groups. Work is ongoing on the management, distribution and transferability of these resources. The report identified some remaining obstacles to resolvability and gaps that to be addressed.
In the insurance sector, FSB continues to monitor implementation of the Key Attributes. Progress on implementation of national insurance resolution regimes has slowed down, with no significant reforms, such as finalization of new or enhanced insurance resolution frameworks, reported in this recent cycle. The FSB Key Attributes Assessment Methodology (KAAM) for the insurance sector, which was published in August 2020, may also be a useful tool for a jurisdiction that is adopting a new resolution regime or reviewing, reforming, or making improvements to its existing regimes. A number of jurisdictions have identified systemically important insurers for purpose of recovery and resolution planning. Key areas of attention for FSB work on resolution planning for insurers are intra-group interconnectedness and funding in resolution. Furthermore, in the event of a 2022 decision to discontinue the global systemically important insurers (G-SIIs) list, FSB will review the scope of application of G-SII specific requirements in consultation with IAIS.
Central counterparties are also increasing in importance, given that the recent periods of market turmoil have demonstrated the benefits that central clearing brings for global financial stability. CPMI and IOSCO coordinated a review, which qualified thirteen central counterparties as systemically important in more than one jurisdiction. Some progress has been made in resolution planning for systemically important central counterparties in more than one jurisdiction. Authorities have established crisis management groups and commenced resolution planning for all central counterparties identified as systemically important in more than one jurisdiction, with the exception of one central counterparty that was added to the list of systemically important central counterparties in more than one jurisdiction in the August review. To support discussions on central counterparty resolvability and adequacy of financial resources for resolution, FSB recently issued a guidance on financial resources to support central counterparty resolution and on the treatment of central counterparty equity in resolution. FSB also developed, in 2020, a resolvability assessment process questionnaire that will be used for the first time in the 2021 for central counterparties that systemically important in more than one jurisdiction. Summary findings from the 2021 central counterparty resolvability assessment process will be included in the 2021 resolution report of FSB. The Chairs of FSB, CPMI, IOSCO, and the FSB Resolution Steering Group agreed to collaborate on and conduct further work on central counterparty financial resources through their respective committees.
Keywords: International, Banking, Insurance, FMI, COVID-19, Crisis Management Framework, CCPs, Resolution Planning, Resolution Framework, FSB
Victor Calanog, Ph.D.
Leading economist; commercial real estate; performance forecasting, econometric infrastructure; data modeling; credit risk modeling; portfolio assessment; custom commercial real estate analysis; thought leader.
Previous ArticleEC Explores Integration of ESG Factors into Banking Framework in EU
FINMA Approves Merger of Credit Suisse and UBS
The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
MFSA Sets Out Supervisory Priorities, Issues Reporting Updates
The Malta Financial Services Authority (MFSA) outlined its supervisory priorities for 2023
German Regulators Issue Multiple Reporting Updates for Banks
Deutsche Bundesbank published the nationally deactivated validation rules for the German Commercial Code (HGB) users on the taxonomy 3.2, which became valid from December 31, 2022
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.