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Financial Stability and Cross-border Crisis Cooperation Work of the FSB

Financial Stability and Cross-border Crisis Cooperation Work of the FSB. Eva H üpkes Financial Stability Board Conference on Strengthening Financial Stability – Deposit Insurance Contributions Rome, 1 October 2010. Overview. The FSB’s “SIFI project” Achievements to date

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Financial Stability and Cross-border Crisis Cooperation Work of the FSB

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  1. Financial Stability and Cross-border Crisis CooperationWork of the FSB Eva Hüpkes Financial Stability Board Conference on Strengthening Financial Stability – Deposit Insurance Contributions Rome, 1 October 2010

  2. Overview • The FSB’s “SIFI project” • Achievements to date • Remaining challenges • Way forward

  3. The issue • Large scale support to institutions “too big to fail” has increased • moral hazard when counterparties believe that they will never suffer a loss • potential fiscal costs of a rescue and the accompanying public outrage • the risks that the home country will not have the resources to rescue a bank (“too big to save”) • Pittsburgh: FSB to propose possible measures to address the “too-big-to-fail” problem at November Summit

  4. FSB- Interim Report to G-20 of June 2010 “Any effective approach to addressing the “too big to fail” problem needs to have effective resolution at its base. An effective resolution regime must provide the authorities with tools to act safely and quickly to resolve a firm in a manner that ensures the continued performance of essential financial functions and uninterrupted access of insured depositors to their funds, without causing a panic or destabilising the financial system, and without exposing the taxpayer to the risk of loss. Cost incurred must be recouped from the financial industry.“

  5. We have come far… • Recent or immanent reforms of national resolution regimes: • Canada (2009) • Germany (2010) • Switzerland (2004/2010) • UK (2009) • US (2010) • European Union (2010) • ...

  6. …reforms are underway • …to ensure continuity of functions in resolution, e.g., access of depositors to their funds, through • temporary “ bridge banks” • transfers of assets and liabilities, including deposit books uno actu to a bridge bank or third party • deposit insurance reforms • CBRG Recommendation 1 • BCBS/IADI Core Principle 16 on effective deposit insurance systems

  7. …but challenges remain. • How to make the resolution possible without taxpayers’ support? • How to ensure continuity of critical functions and access of depositors to their insured funds? • How to use the resolution tools in a cross-border context?

  8. To overcome the challenges… • …the FSB will call for needed legal reforms to ensure that • National authorities have the capacity and mandate to cooperate (“no automaticity of actions”) and to share information across borders • National authorities set out the terms and modalities of coordination and information sharing in cooperation arrangements • Recovery and resolution planning (“living wills”) becomes a regular component of regulatory oversight 8

  9. …implementation is key to success • Monitoring of progress through • Country reviews • Thematic peer reviews • Planned FSB thematic reviews on • Deposit insurance • Resolution regimes

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