The Financial Stability Board (FSB) has published a report which responds to an earlier request from the G20 to assess cross-border consistencies and global financial stability implications of structural banking reforms, taking into account country-specific circumstances.
The report’s main findings include:
- jurisdictions implementing structural banking reforms emphasise that the reforms promote global financial stability by reducing systemic risks as well as the implicit government guarantee to too-big-to-fail institutions, resulting in more efficient market pricing of risk and more effective allocation of capital;
- some jurisdictions identify a number of potential negative cross-border implications, including possible impacts on the efficiency of cross-border groups and complications to their crisis management and resolvability, decreased liquidity of financial markets, regulatory arbitrage and leakage to the shadow banking system; and
- regulatory restrictions to banking structures in order to provide greater ex ante transparency and certainty to the market and authorities in a resolution scenario can have implications for the mobility of cross-border capital flows.
The report also notes that the Basel Committee on Banking Supervision intends to take stock of jurisdictions’ current and prospective treatment of cross-border branches and subsidiaries and report its findings to the FSB by end 2015.