On 10 October 2023, the Financial Stability Board (FSB) published a report on the 2023 bank failures and the preliminary lessons learnt from resolution.
The report identifies preliminary lessons learnt regarding the FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions (Key Attributes) for:
- Resolving a global systemically important bank (G-SIB), drawing on an analysis of the Credit Suisse case.
The report seeks to set out a clear understanding of the Swiss authorities’ actions with a view to drawing lessons for the international resolution framework. It also notes that the case highlighted several important issues including the need for an effective public sector liquidity backstop and operational readiness of banks to access it as a last resort. In addition, firms and authorities need to:
- Address the legal issues identified in the execution of bail-in across borders in the course of resolution planning.
- Better operationalise a range of resolution options such as transfer and sale of business tools alone or in combination with bail-in.
- Understand the impact of bail-in on financial markets.
The case also shows that authorities should continue to prioritise testing and simulating effective decision making and execution at domestic and international levels. They should also extend their communication and coordination efforts outside of the core crisis management group.
The FSB reaches the conclusion that recent events demonstrate the soundness of the international resolution framework in that it provided the Swiss authorities with an executable alternative to the solution that they deemed preferable in this particular case.
- The resolution of systemically important banks more broadly, drawing on the recent bank failure episodes in the United States.
The report notes that the failures of Silicon Valley Bank (SVB), Signature Bank and First Republic Bank showed that banks not identified as G-SIBs can still be systemically significant or critical upon failure.
There was relatively limited resolution planning information available and very limited time to develop and implement firm-specific plans to resolve these banks. The events demonstrated that resolution-related capabilities, such as the ability to quickly produce information needed to market an institution or to operationalise key staff retention plans, are of critical importance, and when such capabilities lack maturity, it can be a hindrance to an efficient resolution process.
SVB, Signature Bank and First Republic Bank would have benefited from having in place loss absorbing capacity in the form of long-term debt, which is an area of work that was already underway before the bank failures and is now the subject of a proposal by the US agencies.
The bank failures raise other issues including the need to explore whether the scope of resolution planning requirements and loss-absorbing capacity requirements needs to be expanded; how resolution authorities can be better prepared for the increased speed of bank runs due to, for example, 24/7 payments, mobile banking, and the use of social media; and the implications of recent events for the role of deposit insurance in resolution arrangements.
The FSB will conduct further work to explore the lessons from the recent bank failures in the areas identified.
Where appropriate, the FSB will continue to coordinate closely with the other standard-setting bodies, as they pursue work lessons learnt from their perspectives.