ICFR: Comparison of FSB and FSA proposals for the resolution of financial institutions

21 November 2011

Both the FSB and FSA proposals on resolution make a number of advances, and provide evidence that the peculiar difficulties of resolving failing financial institutions have been recognised and are being addressed.

In this summary, the ICFR examines recent proposals for the resolution of financial institutions by the Financial Stability Board (FSB) and the UK's Financial Services Authority (FSA). By juxtaposing a comparison of the FSB and FSA proposals with an outline of the enduring difficulties which effective cross-border resolution regimes face, the ICFR suggests that while progress has been made, there are a number of outstanding issues regarding cross-border resolutions. In particular, FSB proposals for institution-specific cooperation agreements have the scope to be burdensome, without providing the kind of legally-binding mechanisms that are a prerequisite for transcending the problems experienced in the past.

By examining some of the academic literature as well as published responses to the FSB's July consultation, the ICFR suggests that there is a need for more ambition regarding the creation of cross-border cooperation regimes if the long-standing problems of cross-border resolution are to be resolved themselves. The FSB's proposals were endorsed by the G20 Leaders in Cannes. The ICFR hopes that this endorsement is not the final word, and that the FSB will make use of its strengthened legal and institutional underpinning, as supported by the G20, to push for stronger and more binding standards.

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