The Financial Stability Board (FSB) has published a letter from its chairman, Mark Carney, which provides G20 Finance Ministers and Central Bank Governors with an update on its progress with financial services reforms.
The letter summarises the priorities for completing reforms by the G20 summit in Brisbane. These are:
- ending too-big-to-fail;
- transforming shadow banking; and
- making derivatives markets safer.
In relation to ending too-big-to-fail, the letter refers to the FSB’s work concerning gone-concern loss-absorbing capacity (GLAC) and cross-border resolution actions. On GLAC, the FSB intends to submit a proposal to the G20 summit in Brisbane. FSB members are making progress in developing a proposal but Finance Ministers and Central Bank Governors are asked to provide support on the following issues:
- the criteria that bank liabilities should meet to be considered as GLAC;
- the appropriate amount of GLAC that systemically important banks should hold; and
- where in the structure of banking groups that GLAC should be held.
On the resolution of cross-border banks, the letter states that this must be supported by contractual or statutory approaches for cross-border recognition of resolution actions, including temporary stays on close-out and cross-default rights in financial contracts when a firm enters resolution, and bail-in of debt issued under foreign law. For the Brisbane summit, the FSB is working with the financial industry to establish a contractual approach to temporary stays. Finance Ministers and Central Bank Governors are called on to ensure that national authorities are empowered to co-operate fully with their counterparts in other countries, including by recognising foreign resolution actions and ensuring that debt issued under foreign law includes contractual recognition provisions so that bail-in is effective in a cross border context.
The FSB has a number of work streams on transforming shadow banking. It has agreed an information sharing process to support implementation of a policy framework for oversight and regulation of shadow banking entities other than money market funds. In addition, the letter states that the Basel Committee on Banking Supervision has also finalised its supervisory framework for large exposures which will be published shortly.
On making derivatives markets safer, the letter notes that ahead of the Brisbane summit the:
- OTC Derivatives Regulators Group will provide further reports in September and November on how it has addressed, or intends to address, identified cross-border implementation issues;
- FSB will publish a report in September on the established processes in each jurisdiction to enable a deferral to the over-the-counter derivatives rules of others where these achieve similar outcomes; and
- FSB will publish a report in May on approaches to aggregating and sharing derivatives data amongst authorities.