Among other measures, the principles call for SIFIs to:
- limit exposure within their own groups
- develop and implement contingency plans
- establish service level agreements that are legally enforceable in crises and in resolution
- create credible recovery plans to enable recovery from a range of severe stresses – plans they must also share with authorities
- create a comprehensive, regularly updated and ring-fenced Management Information system to support resolution planning
- share resolution-related information with authorities.
The FSB acknowledges that limited progress has been made on harmonized resolution regimes for major cross-border groups. It’s also aware that, in general, progress toward implementation has so far been uneven.
Nonetheless, the FSB’s principles are beginning to be adopted across the global banking sector.
Within the EU, for example, the principles are expected to underpin a new Crisis Management Directive that will apply to all credit institutions – not just to Systemically Important Banks (SIBs).
Meanwhile, authorities in many other countries – including Australia, Japan, the Netherlands, Spain and the UK – have begun to discuss recovery and resolution planning with their major banks.
- the recovery and resolution planning requirements that national authorities will impose on nationally important banks – even if they’re not classed as Globally Systemically Important Banks (G-SIBs)
- the amounts and types of ‘bail-in’ debt from unsecured and uninsured creditors that banks are required to hold
- the different approaches national authorities may take on ‘critical’ bank activities
- the degree to which banks will have to change their business activities and their legal and operational structures in advance, to reduce the potential cost and complexity of resolution
- the question of how far things will have to go before the authorities trigger a resolution.
The implications for SIBs are significant. For many banks, this second wave of regulatory reforms will represent a tipping point that forces them to seriously consider the impact of these proposals on their strategies and business models. Significant changes may be required to preserve business value. Meanwhile, the potential 'bailing-in' of unsecured and uninsured creditors will also have major implications for the cost and availability of funding – and will encourage creditors to fund SIFIs on a secured rather than unsecured basis.