World's Biggest Banks Still Not `Truly Resolvable,' FSB Says

Bank Of England Governor Mark Carney Delivers Speech At The Cairncross Memorial Lecture

Mark Carney, governor of the Bank of England.

Photographer: Luke MacGregor/Bloomberg
  • Global regulators issue guidelines for cross-border wind-down
  • `Have more work to do' to remove obstacles to resolution

Global banks working in multiple countries still can’t be wound down with certainty and in an orderly manner, one of the key goals world leaders put before the Financial Stability Board, the regulator led by Bank of England Governor Mark Carney.

Nations need to enact comprehensive legislation that ensures other countries’ decisions in winding down a bank are recognized and supported, the FSB said in a statement on Tuesday. Temporary stays on termination rights and “bail-in” rules to impose losses on creditors and shareholders are other areas in which impediments to cross-border resolution remain, according to the regulator.

“The results from the first round of the Resolvability Assessment Process that home and host authorities of globally systemic banks have completed this year have shown that we have more work to do before we can claim that such firms are truly resolvable,” said Elke Koenig, head of the euro area’s Single Resolution Board and the FSB’s Resolution Steering Group.

The Group of 20 nations charged the FSB with making sure taxpayer-funded bailouts like those seen in the 2008 financial crisis don’t recur. Among the measures it imposed are capital surcharges on global systemically important lenders and additional loss-absorbing capacity requirements.

RBS Demotion

The Basel-based regulator updated its list of the world’s 30 biggest banks on Tuesday, adding China Construction Bank Corp., dropping Spain’s Banco Bilbao Vizcaya Argentaria SA and downgrading Royal Bank of Scotland Group Plc. Carney is due to present the FSB’s final term sheet for total loss-absorbing capacity on Nov. 9.

The FSB released recommendations for legislation that should be enacted to make the wind-down of banks feasible following a public consultation that started last year. It also published advice for information sharing between authorities in which global systemically important financial institutions are present.

The regulator is also seeking comments on proposals for the temporary funding of institutions that are being wound down and on their operational continuity, as well as on “effective resolution strategies” for the world’s biggest insurers.

“The consultations and final guidance will provide practical orientation in some of the areas where we identified impediments to resolvability,” Koenig said.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE