A primary focus of global and national regulators since the height of the financial crisis has been to ensure that large, global financial services institutions do not pose a risk to the entire financial system, and are able to be resolved without systemic disruption and without capital support from the taxpayers.
The anticipated new policy measures will require changes in the capital and funding structures of systemically important institutions, affecting the specific instruments issued and potentially the alignment of these with investor mandates.
Institutions also need to undertake the preparation and maintenance of detailed resolution information and recovery plans, in order to be able to effect orderly resolution ever required, and subject to “resolvability assessments” by their supervisors.
In the absence of robust capital and resolution procedures aimed at ending TBTF, institutions are likely to face greater pressure to restrict activities or even “break up” banks of substantial size, both of which the IIF believes would be highly damaging to the efficiency of the global financial system.
The IIF has supported work of the Financial Stability Board (FSB) and believes that it must now focus on ensuring national resolution and recovery regimes are appropriately harmonized across jurisdictions.
The IIF has been at the forefront of the discussion with regulators on enhanced supervision and resolution for Globally Systemically Important Banks (G-SIBs) and Globally Systemically Important Insurers (G-SIIs), both by publishing landmark reports early in the process and by continuing high-level discussions among the public- and private-sector persons who are leading the development of ideas on Resolution.
The IIF has also entered the debate actively on behalf of other financial institutions regarding both the identification methodology for non-bank, non-insurance (NBNI) Systemically Important Financial Institutions and associated policy measures, primarily to ensure that such measures accurately account for differences between institutions and reflect true systemic risk, a critical element of IIF work on G-SIIs. The IIF made a submission in response to the FSB’s January 2014 NBNI proposal.
The FSB has developed globally accepted principles, the Key Attributes of Effective Resolutionand is now working with national authorities to implement resolution programs that ensure authorities have the tools they need to resolve a large global financial institution with minimum destruction of value and minimal impact on the financial system. The United States, United Kingdom and European Union have finalized resolution mechanisms, and the IIF is supporting the FSB’s efforts to assure effective cooperation among resolution authorities both in anticipation of resolution and during resolution should one occur
The current major area of attention is on the development of requirements for banks have sufficient Gone-concern Loss Absorbing Capacity (GLAC) in a form that will be readily available in case of a resolution of a bank.
Debate continues on whether banks enjoy a "subsidy" as a result of the implicit promise of the authorities to bail them out; however, any fair reading of the record shows that expectation of public support has been essentially eliminated: “bail-in” not “bail-out” is being priced into bank obligations.