On September 30, the Institute of International Finance (IIF) submitted a response to the Financial Stability Board (FSB) consultation report on the evaluation of the too-big-to-fail (TBTF) reforms.
On June 28, the FSB released a consultation report with the findings of its evaluation of the impact of the suite of TBTF reforms, introduced for systemically important banks after the global financial crisis. The high-level findings of the FSB’s evaluation so far are that the TBTF reforms are reducing the systemic and moral hazard risks associated with systemically important banks and that they bring net benefits to society. However, there are still gaps that need to be addressed. The FSB has stated that its analysis was conducted before the COVID-19 pandemic.
Overall, IIF members welcome many of the report’s messages and findings, particularly in terms of the benefits of the TBTF reforms and evidence that they are achieving their objectives. However, the letter discusses that the report has been unduly cautious in recognizing the tremendous progress that has occurred and takes issue with certain conclusions which the letter asks the FSB to reconsider in its final report. In response to a request from the FSB, the letter also provides some preliminary observations about financial stability during the ongoing COVID-19 crisis that are relevant to the TBTF evaluation.