EFR believes that authorities should have a sufficiently large arsenal of crisis management tools to deal with the successive stages of early intervention, recovery, and resolution, or insolvency so the financial institution failure can be managed in an orderly way to maintains financial stability.
The Members of the European Financial Services Round Table (EFR) are pleased to share with the Economic and Finance Ministers of the G20 countries an assessment of recent regulatory developments, in the context of the upcoming Meeting of Finance Ministers & Central Bank Governors in Washington on April 22-23, 2010.
A fundamental reconsideration is needed on the proposed new capital and liquidity requirements given their potential impact on economic growth. Preliminary analysis by individual banks and banking associations of the Basel Committee’s capital and liquidity proposals reveals a severe impact on the banking industry, disproportionate to the actual experience of the financial crisis. This could seriously hamper the banking industry’s capacity to finance the wider economy, thus threatening economic recovery and growth. Most European countries mainly have a banking-dominated financial system.
Special intervention and resolution regimes should be put in place to ensure that when any financial institution fails, including one which operates cross-border, the failure can be managed in an orderly fashion that maintains financial stability without imposing inappropriate costs on the fiscal system. In particular, the EFR believes that: (i) authorities should have a sufficiently large arsenal of crisis management instruments at their disposal to deal with the successive stages of early intervention, recovery, and resolution, or insolvency;
(ii) there must be full clarity on the concept of living wills, which are currently being discussed or even implemented for banks (and are unnecessary for insurance companies), and an in-depth analysis of their implications;
(iii) more experience needs to be gathered on the design, pricing and characteristics of contingent capital arrangements as a policy instrument;
(iv) the international alignment of insolvency regimes is highly complex and regulators may therefore initially need to aim at "targeted convergence"; and
(v) ’too-big-to-fail’ analysis should focus on those areas where large financial institutions perform functions that cannot be shifted to other entities in the short to medium term. On a more general note, it needs to be recognized that resolution regimes, as well as the ranking of importance of the instruments they employ, will vary depending on business models in the different segments of the financial system.
© EFR - European Financial Services Round Table
Key
Hover over the blue highlighted
text to view the acronym meaning
Hover
over these icons for more information
Comments:
No Comments for this Article