On May 23, the Financial Stability Board (FSB) launched an evaluation of the impact of the suite of Too-Big-To-Fail (TBTF) reforms introduced after the global financial crisis. The FSB published a summary terms of reference with some details about the objectives, scope and process of its evaluation, which will run until late 2020. The FSB plans to assess whether the implemented reforms are reducing the systemic and moral hazard risks associated with systemically important banks (SIBs). It will also examine the broader effects of the reforms on the overall functioning of the financial system, including whether there have been any unintended consequences.
Providing a short window for comments, the FSB issued a public Call for Feedback on the questions it will investigate. We convened the IIF’s Steering Committee on Effective Regulation (SCER) and Cross-Border Resolution Working Group (CBRWG) to prepare a response, which was sent on July 5. The letter discusses the substantial work that has been done by the public and private sectors to implement the TBTF reforms since the global financial crisis, and the considerable evidence that the TBTF reforms are achieving their objectives. We observe that the reforms have had a wide-reaching impact on the structure and functioning of the financial system; most of which was intended and beneficial, and some of which is unintended and negative. We are urging the FSB to consider the following specific issues during their evaluation: market fragmentary trends around the implementation of the TBTF reform agenda; the interplay between TBTF measure and other post-crisis reforms; and the effects on risk migration to the non-bank financial sector.