IIF Paper: 'Too Big To Fail' Coming to an End

September 18, 2014

Washington, D.C., September 18, 2014 - The Institute of International Finance today released a paper arguing that, in the relatively near future, regulators and the industry will be able to say without reservation that no financial institution is "too big to fail."

"The global financial system is safer and sounder than it was six years ago," said Tim Adams, president and CEO of the IIF. "In 2008, there was no plan for what to do if a big bank failed. Today, we have agreed international principles. Legislatures have enacted these principles into law. Detailed roadmaps have been prepared to apply the new laws on a bank by bank basis, and lines of communication have been established among authorities to ensure a global bank can be resolved cross-border."

"We believe that the toolkit which has been developed is sufficient to resolve not just a few banks but all of the bank business models which currently exist," said Simon Gleeson of Clifford Chance, chairman of the IIF Cross-Border Resolution Working Group, which produced the paper. "The true measure of the credibility of resolution is the price of bank debt, and investors in bank debt are already pricing in the possibility of resolution. Credible resolution is the end of too big to fail."

The paper discusses how the Financial Stability Board's (FSB)Key Attributes of Effective Resolution Regimes for Financial Institutionsare currently being implemented into national resolution regimes, specifically citing the substantial progress which has now been made by the United States, European Union, Japan and Switzerland.

The paper addresses concerns over issues surrounding the cross-border resolution of a global bank. The IIF reiterated its support for an international framework, but noted that in absence of that framework, it believes that national regulators can and will work together to address conflicts within existing resolution regimes.

The paper also identifies several next steps the FSB and national regulators should address as they look to finish their work:

  • Provide more granularity to the recommended statutory frameworks in some areas;
  • Enhance supervisors' and resolution authorities' ability to exchange information and the actual exchanging of such information;
  • Engage in thorough-going simulations and testing of recovery and resolution plans with home and host supervisors, resolution authorities, central banks, finance ministries and judicial authorities.
  • Open up the regulatory process for consultation-on a more frequent and more detailed basis-with stakeholders.

 

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The Institute of International Finance is the global association of the financial industry, with close to 500 members from 70 countries. Its mission is to support the financial industry in the prudent management of risks; to develop sound industry practices; and to advocate for regulatory, financial and economic policies that are in the broad interests of its members and foster global financial stability and sustainable economic growth. Within its membership IIF counts commercial and investment banks, asset managers, insurance companies, sovereign wealth funds, hedge funds, central banks and development banks. For more information visit www.iif.com.

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