The Institute of International Finance (IIF) and the Global Financial Markets Association (GFMA) today submitted a joint response to the Financial Stability Board’s (FSB) discussion paper on the topic of Public Disclosures on Resolution Planning and Resolvability.
The response notes that the resolution planning and resolvability work that has been undertaken by the FSB in cooperation with member jurisdictions, including the adoption of the Key Attributes of Effective Resolution Regimes for Financial Institutions in 20112, is part of a considerable effort that has gone a long way to help achieve the objectives of reducing systemic and moral hazard risks associated with systemically important banks. FSB jurisdictions have made substantial progress towards ending “Too-Big-To-Fail” through the introduction of legislative frameworks governing the resolution of systemically important banks. Banks have also developed resolution plans and taken significant actions to remove barriers to resolvability. And systemically important banks are now significantly better capitalized, have better funding conditions and are less interconnected than during the global financial crisis, which reduces the probability of a resolution in the first place.
As such, it is important that these efforts are properly explained and disclosed to help inform investors, creditors and other market participants more generally about what frameworks are in place, thereby strengthening market discipline and incentivizing firms to remove any remaining barriers to resolvability. The use of ex ante disclosures also clarifies expectations to investors and financial markets about what steps would be taken during resolution and should thereby also contribute to market confidence. As such, the Associations are supportive of general resolution-related disclosures by global standard setters, member jurisdictions and by firms.
That said, the FSB has also just commenced a significant evaluation on the impact of the Too-Big-To-Fail reforms for systemically important banks, which will run until late 2020. We encourage the FSB to await the outcome of that evaluation and allow a meaningful observation period (which is likely to extend beyond 2020) before the issuance of any further guidance on firm-specific disclosures. Any further work in this area should only be proposed in response to any identified shortcomings and needs. Otherwise we should encourage a breathing moment, in order not to create the feeling of moving goalposts in the regulatory space.
Regarding the regulation and frameworks that have already been developed, although there is already a great deal of information available to markets, more can be done to make this information easier to find and presented in a simple, effective and comparable way. Authorities could consider organizing conferences, workshops and additional investor outreach that would also help inform market participants about the details of resolution planning and resolvability approaches. Disclosure of firm-specific details can be more complex, as the FSB Discussion Paper explains, due to the need to protect commercially sensitive information and, given the market sensitivity of this type of firm-specific information, to ensure consistent and appropriate levels of disclosure by different institutions.