WASHINGTON (MNI) – The Financial Stability Board released the
following text on Systemically Important Financial Institutions,
November 4:
1. At recent Summits, G20 Leaders asked the FSB to develop a policy
framework to address the systemic and moral hazard risks associated with
systemically important financial institutions (SIFIs).
2. In Seoul last year, G20 Leaders endorsed this framework and the
timelines and processes for its implementation. The development of the
critical policy measures that form the parts of this framework has now
been completed. Implementation of these measures will begin from 2012.
Full implementation is targeted for 2019.
3. SIFIs are financial institutions whose distress or disorderly
failure, because of their size, complexity and systemic
interconnectedness, would cause significant disruption to the wider
financial system and economic activity. To avoid this outcome,
authorities have all too frequently had no choice but to forestall the
failure of such institutions through public solvency support. As
underscored by this crisis, this has deleterious consequences for
private incentives and for public finances.
4. Addressing the “too-big-to-fail” problem requires a multipronged
and integrated set of policies. Accordingly, the policy measures we have
agreed comprise:
i) A new international standard, as a point of reference for reform
of our national resolution regimes, setting out the responsibilities,
instruments and powers that all national resolution regimes should have
to enable authorities to resolve failing financial firms in an orderly
manner and without exposing the taxpayer to the risk of loss (FSB Key
Attributes of Effective Resolution Regimes’);
ii) Requirements for resolvability assessments and for recovery and
resolution planning for global systemically important financial
institutions (G-SIFIs), and for the development of institution-specific
cross-border cooperation agreements so that home and host authorities of
G-SIFIs are better prepared for dealing with crises and have clarity on
how to cooperate in a crisis;
iii) Requirements for banks determined to be globally systemically
important to have additional loss absorption capacity tailored to the
impact of their default, rising from 1% to 2.5% of risk-weighted assets
(with an empty bucket of 3.5% to discourage further systemicness), to be
met with common equity;
iv) More intensive and effective supervision of all SIFIs,
including through stronger supervisory mandates, resources and powers,
and higher supervisory expectations for risk management functions, data
aggregation capabilities, risk governance and internal controls. In
early 2012, stronger international standards for core financial market
infrastructures will be finalised to reduce contagion risks when
failures occur.
5. The G-SIFIs to which the resolution planning and additional loss
absorption requirements will apply will be determined, in the case of
banks, by the FSB and BCBS based on the methodology that has been
developed by the BCBS.
6. Using the BCBS methodology, the FSB and BCBS have identified an
initial group of 29 globally systemically important banks, listed in
alphabetical order in the Annex to this document. These G-SIFIs will
need to meet the resolution planning requirements by end-2012. National
authorities may decide to extend these resolution planning requirements
to other institutions in their jurisdictions.
7. The group of G-SIFIs will be updated annually and published by
the FSB each November. The methodology and the data used by it will be
publicly available so that markets and institutions can replicate the
authorities’ determination.
8. The additional loss absorbency requirements will initially apply
to those banks identified in November 2014 as globally systemically
important using the BCBS methodology. They will be phased in starting in
January 2016 with full implementation by January 2019. These banks must
also meet the higher supervisory expectations for data aggregation
capabilities by January 2016.
9. The FSB and BCBS have assessed the macroeconomic impact of
higher loss absorbency requirements for G-SIFIs. The enduring global
economic benefits of greater resilience of these institutions far exceed
the modest temporary decline of GDP over the implementation horizon.
10. Consistent implementation will be critical to the effectiveness
of these policy measures. Legislative changes will be required in many
jurisdictions to implement the FSB Key Attributes of Effective
Resolution Regimes and to strengthen supervisory mandates and
capabilities. Other requirements will demand a high degree of active
cooperation amongst authorities and reviews and changes by firms of
their structures and operations.
11. An FSB Peer Review Council, working with other bodies as
appropriate, will review the full and consistent implementation of the
G-SIFI measures and changes to national resolution regimes. The FSB,
with the involvement of the IMF, the World Bank and the standard
setters, will draw up a methodology to assess implementation of the Key
Attributes standard.
12. The FSB and the BCBS will begin work this year to define the
modalities to extend expeditiously the framework to all SIFIs. The
International Association of Insurance Supervisors (IAIS) is expected to
complete its assessment methodology for identifying globally
systemically important insurers in time for the G20 Summit in June 2012.
The IAIS will also pursue its work to develop a Common Framework for the
Supervision of Internationally Active Insurance Groups by 2013, in order
to foster group wide supervision and global convergence of regulatory
and supervisory approaches.
13. The policy measures summarised in this note are set out in
detail in the following reports:
i) Key Attributes of Effective Resolution Regimes for Financial
Institutions, FSB, October 2011.
ii) Global Systemically Important Banks: Assessment Methodology and
the Additional Loss Absorbency Requirement, BCBS, October 2011.
iii) Intensity and Effectiveness of SIFI Supervision, FSB, October
2011.
[TOPICS: M$X$$$,MGX$$$,MT$$$$,MI$$$$,M$$CR$]
