Banking Supervision Regulation - White Papers

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Resolving Globally Active, Systemically Important, Financial Institutions - Bank of England/FDIC - December 2012

On December 10, 2012, the Bank of England and the Federal Deposit Insurance Corporation issued a joint paper on iddues related to the resolution of globally active, systemically important financial institutions (G-SIFIs). The paper summarizes the strategies that the United States and the United Kingdom have been developing regarding orderly liquidation, and discusses how a "top-down" resolution strategy could be implemented for a U.S. or a U.K. financial group in a cross-border context. It also outlines several common considerations that affect these particular approaches to resolution in the U.S. and the U.K., including the need to ensure sufficient loss absorbency at the top of the group.[1]

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Banking Reform - U.K. Treasury, June 2012

In June 2012, the U.K. Treasury, under the direction of Chancellor of the Exchequer George Osborne, submitted a white paper highlighting its recommendations on banking reform. These recommendations soften key recommendations of the Vickers Commission. [2] The recommendations can be categorized into those involving the separation of commercial and investment banking activities ("ringfencing") and those involving capital adequacy and leverage ratios ("loss-absorbency").

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Fundamental review of the trading book - Bank for International Settlements, May 2012

On May 3, 2012, the Basel Committee on Banking Supervision released a consultative document that maps out the strategy for strengthening banks by proposing new ways to calculate the risks in trading books. The consultation is separate from the committee's Basel III capital rules.[3] The deadline for public comment is September 7, 2012.

The Committee is also proposing to strengthen the relationship between the models-based and standardised approaches by establishing a closer link between the calibration of the two approaches, requiring mandatory calculation of the standardised approach by all banks, and considering the merits of introducing the standardised approach as a floor or surcharge to the models-based approach. Furthermore, the treatment of hedging and diversification will be more closely aligned between the two approaches.[4]

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Principles for Financial Market Infrastructures - CPSS/IOSCO, April 2012

On April 16, 2012, the Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO) published a report on the principles for financial market infrastructures (FMIs). The report contains new and more demanding international standards for payment, clearing and settlement systems, including central counterparties. Issued by the CPSS and the International Organization of Securities Commissions (IOSCO), the new standards are designed to create a global payment system capable of withstanding systemic threats.

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Bank for International Settlements - Assessment methodology and the additional loss absorbency requirement for global systemically important banks - July 19, 2011

On July 19, 2011, the Basel Committee on Banking Supervision released a consultation setting out its previously agreed-upon measures for global systemically important banks (G-SIBs). Under the proposal, G-SIBs would be judged on five criteria:

  • size,
  • interconnectedness,
  • lack of substitutability,
  • global (cross-jurisdictional) activity, and
  • complexity.

As of the issue date, 28 global banking institutions would be subject to the additional loss absorbency requirement due to their global systemic importance.[5] In addition, a progressive Common Equity Tier 1 (CET1) capital requirement ranging from 1% to 2.5%, depending on a bank's systemic importance, will be imposed. The requirements will be phased in, in conjunction with Basel III, and be fully effective on January 1, 2019.

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Financial Stability Board - Effective Resolution of Systemically Important Financial Institutions - July 19, 2011

On July 19, 2011, the Financial Stability Board released a consultative document on the effective resolution of systemically important financial institutions (SIFIs). The document proposes several policy measures to allow global authorities to effectively avoid systemic disruption in the event of the failure of a failed SIFI.[6] The proposal is comprised of four key components:

  • strengthened national resolution regimes;
  • cross-border cooperation arrangements;
  • improved resolution planning by firms and authorities; and
  • measures to remove obstacles to resolution.

The paper suggests the powers and tools all jurisdictions should have, and proposes a framework for resolvability assessment, recovery, and resolution plans. Finally, the paper invites public comment on several key issues, including measures to improve resolvability, creditor hierarchy, depositor preference and depositor protection in resolution, and conditions for imposing temporary stays of contractual early termination rights.

The deadline for public comment was September 2, 2011.

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References

  1. U.K. Softens Vickers’ Bank Proposals, Prompting Criticism. Bloomberg Businessweek. Retrieved on June 18, 20121.
  2. U.K. Softens Vickers’ Bank Proposals, Prompting Criticism. Bloomberg Businessweek. Retrieved on June 18, 20121.
  3. Regulators propose shake-up of bank trading books. Reuters. Retrieved on May 8, 2012.
  4. Fundamental review of the trading book - consultative document. BIS. Retrieved on May 8, 2012.
  5. Assessment methodology and the additional loss absorbency requirement for global systemically important banks - consultative document issued by the Basel Committee. Bank for International Settlements. Retrieved on August 30, 2011.
  6. FSB releases consultation documents on measures to address systemically important financial institutions. Financial Stability Board. Retrieved on September 6, 2011.

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