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01 October 2014

IIF: “Too big to fail” coming to an end


The Institute of International Finance today released a paper arguing that, in the relatively near future, regulators and the industry will be able to say without reservation that no financial institution is “too big to fail.”

“We believe that the toolkit which has been developed is sufficient to resolve not just a few banks but all of the bank business models which currently exist,” said Simon Gleeson of Clifford Chance, chairman of the IIF Cross-Border Resolution Working Group, which produced the paper. “The true measure of the credibility of resolution is the price of bank debt, and investors in bank debt are already pricing in the possibility of resolution. Credible resolution is the end of too big to fail.”

The paper discusses how the Financial Stability Board’s (FSB) Key Attributes of Effective Resolution Regimes for Financial Institutions are currently being implemented into national resolution regimes, specifically citing the substantial progress which has now been made by the United States, European Union, Japan and Switzerland.

The paper addresses concerns over issues surrounding the cross-border resolution of a global bank. The IIF reiterated its support for an international framework, but noted that in absence of that framework, it believes that national regulators can and will work together to address conflicts within existing resolution regimes.

The paper also identifies several next steps the FSB and national regulators should address as they look to finish their work:

·         Provide more granularity to the recommended statutory frameworks in some areas;

·         Enhance supervisors’ and resolution authorities’ ability to exchange information and the actual exchanging of such information;

·         Engage in thorough-going simulations and testing of recovery and resolution plans with home and host supervisors, resolution authorities, central banks, finance ministries and judicial authorities.

·         Open up the regulatory process for consultation—on a more frequent and more detailed basis—with stakeholders.

 

Full press release

Full paper



© IIF - Institute of International Finance


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