FSB published report on reducing the moral hazard posed by systemically important financial institutions
12 November 2010
The G20 Leaders at the Seoul summit endorsed the FSB policy framework for reducing the moral hazard of systemically important financial institutions, including the work processes and timelines set out in the report.
SIFIs are financial institutions whose disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity.
FSB jurisdictions have agreed to put in place the policy framework to reduce the risks and externalities associated with domestic and global systemically important financial institutions in their jurisdictions. As the report states:
The policy framework for SIFIs should combine:
· a resolution framework and other measures to ensure that all financial institutions can be resolved safely, quickly and without destabilising the financial system and exposing the taxpayer to the risk of loss;
· a requirement that SIFIs and initially in particular global SIFIs (G-SIFIs) have higher loss absorbency capacity to reflect the greater risks that these institutions pose to the global financial system;
· more intensive supervisory oversight for financial institutions which may pose systemic risk;
· robust core financial market infrastructures to reduce contagion risk from the failure of individual institutions and
· other supplementary prudential and other requirements as determined by the national authorities.
Additionally, home jurisdictions for G-SIFIs should:
· enable a rigorous co-ordinated assessment of the risks facing the G-SIFIs through international supervisory colleges;
· make international recovery and resolution planning mandatory for G-SIFIs and negotiate institution-specific crisis cooperation agreements within cross-border crisis management groups;
© Financial Stability Board
