World’s Biggest Banks Still Pose Too-Big-to-Fail Risk, FSB Says

  • FSB releases report calling for additional oversight steps
  • FSB says industry has made progress despite challenges

The world’s biggest banks still can’t be wound down in an orderly manner nearly eight years after the financial crisis, the Financial Stability Board said, calling for renewed efforts to tackle the risks posed by too-big-to-fail firms.

The FSB, led by Bank of England Governor Mark Carney, said in a report on Thursday that while significant progress has been made, firms and regulators need to better assess liquidity needs for lenders in resolution and to determine how creditors can share losses and replenish a failing bank’s capital.

“Challenges remain in a number of important areas where we need to undertake renewed efforts during the remainder of the year and in 2017 to complete the job of ending ‘too-big-to-fail,”’ Andrew Gracie, chair of the FSB’s cross-border crisis management group for banks and executive director for resolution at the BOE, said in a statement.

Among areas where progress has been made, the FSB said that banks have begun to develop issuance strategies to meet new total loss-absorbing capacity requirements, and national regulators are working on implementation of the standard. Lenders are also “putting in place arrangements to support operational continuity of critical shared services in resolution,” the FSB said.

Sufficient Liquidity

The FSB also released final guidance for banks to ensure they have sufficient liquidity to maintain critical functions during a resolution. The guidelines are meant to enable the largest banks to have temporary funding without public bailouts.

The Basel-based regulator, whose members include the U.S. Federal Reserve and European Central Bank, called for implementation of TLAC rules to be completed at the national level. The FSB said it will also publish additional guidance this year on the standard and how it should apply to internal bank divisions.

The FSB maintains a list of the world’s 30 most systemically important banks, headed by HSBC Holdings Plc and JPMorgan Chase & Co., and including China Construction Bank Corp., Barclays Plc and Royal Bank of Scotland Group Plc.

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