On 28 June 2020, the Financial Stability Board (FSB) published for public consultation an evaluation of too-big-to-fail (TBTF) reforms for systemically important banks.
The consultation report finds that the TBTF reforms have contributed to the resilience of the global banking sector and its ability to absorb, rather than amplify, shocks. Major banks are much better capitalised, less leveraged and more liquid than they were before the global financial crisis. Systemically important banks in advanced economies have built up significant loss-absorbing and recapitalisation capacity by issuing instruments that can bear losses in the event of resolution. A key finding of the report is that significant progress has been made since the global financial crisis in establishing resolution regimes and enhancing the resolvability of banks. These reforms give authorities more options for dealing with banks in distress, though which options are used is for individual authorities to consider in light of the particular circumstances. Resolution planning, together with enhanced supervision, have significantly improved the operational capabilities of banks and authorities, as well as the accuracy and detail of the information available to them.
Whilst the consultation report does not make specific policy recommendations it does note that the TBTF policy still has a number of gaps that need to be addressed. These involve the implementation of total loss absorbing capacity, resolution funding mechanisms, the valuation of bank assets in resolution, operational continuity and continuity of access to financial market infrastructure and cross-border coordination.