On 3 June 2019, the Financial Stability Board (FSB) published a discussion paper on the solvent wind-down of derivatives and trading portfolios.
The discussion paper sets out considerations related to the solvent wind-down of the derivative portfolio activities of a global systemically important bank (G-SIB) that may be relevant for authorities and firms for both recovery and resolution planning.
Many G-SIBs have large derivative and trading portfolios, including in some cases with illiquid or exotic positions. A disorderly close-out of these portfolios can potentially propagate substantial risks to financial stability. Given the global presence of some G-SIBs and the cross-border nature of many of these portfolios (including the intra-group transactions arising from firms’ booking models), such financial stability risks could spread across borders.
The discussion paper considers the capabilities G-SIBs should be able to meet to support the preparation and execution of a solvent-wind down plan, the evaluation of firm capabilities and issues that home and host supervisors need to consider.
The deadline for responses to the discussion paper 2 August 2019. The FSB may develop the discussion paper into a paper that can serve as a reference to assist jurisdictions in developing their approaches to managing the risks associated with large derivative and trading books.