FSB ‘too big to fail’ proposals welcomed by industry
Browne: The banking industry “strongly supports” the FSB proposals
The Financial Stability Board is proposing a new minimum standard for total loss-absorbing capacity, which is designed to provide confidence that systemically important global banks can absorb losses without upsetting financial stability and the wider economy.
The FSB has launched a public consultation on the proposals to introduce a new set of principles covering loss-absorbing and recapitalisation capacity for banks, which are part of the G20 efforts to reform financial services.
The goal of the reform is to protect taxpayers by removing the implicit public subsidy from large global banks – and to incentivise creditors to better monitor the banks’ risk taking. As an added advantage, the proposals aim to bring in a level playing field, reducing the funding cost advantage enjoyed by big banks and thereby encouraging more competition and better services.
The ‘TLAC adequacy’ proposals put forward by the FSB will take account of bank recovery and resolution plans, their business models, risk profiles and organisation. The principles and term sheet aim to provide guidance for authorities on how to determine the requirements for each bank, which will be done in consultation with crisis management groups and subject to review with the FSB.
The proposal met with support from the British Bankers’ Association.
“The FSB has led important work to strengthen banks and ensure that they can be subject to an orderly resolution procedure in the event of failure,” said Alastair Browne, BBA chief executive. “ The banking industry strongly supports this work, which is a really important step in ending “too big to fail” and ensuring that never again will taxpayers have to step in to bail out banks. We agree with the aims and objectives of the proposals for total loss absorbing capacity, that there should be sufficient resources available to absorb losses in the event of bank failure and provide new capital to ensure critical economic functions can continue to be provided. The proposals published today are complex and the methodology will need to be calibrated before it is finalised. The decision to conduct a holistic impact assessment to gauge their economic implications is welcome.”
In early 2015, the FSB plans to carry out an impact assessment together with the Basel Committee on Banking Supervision and the Bank for International Settlements to calibrate the basic requirement for all global systemically important banks. The proposals are due to be finalised by the G20 leader’s summit in 2015.
The FSB is a Switzerland-based body that works with regulators, international standard setting bodies and financial institutions to coordinate regulatory policy.
