Global

Details

  • Industry: Financial Services, Insurance, Investment Management, Capital Markets, Banking
  • Type: Video
  • Date: 8/3/2011
  • Length: 4:23 Minutes

Recovery and Resolution Planning video 

KPMG’s Financial Services Regulatory Centers of Excellence:

 WHAT ARE RECOVERY and RESOLUTION PLANS?

 

Iain Cummings: Recovery and Resolution Plans are a new tool that the regulators have developed to manage systemic risk within the financial system, post the global financial crisis.

 

From a recovery point of view, firms are being asked to consider, what are you going to do in extreme stress? What is your plan B? Beyond your normal capital and liquidity actions, what are you going to do in extreme crisis? How could you de-risk the business? How could you raise additional capital? How could you supplement your liquidity resources quickly?

 

Jon Greenlee: A resolution plan is further on the continuum of risk management tools that an institution would have, because the resolution plan would start to kick in once all the options under the recovery plan have been exhausted.

 

Iain: From a resolution point of view, it’s really about how would you minimize the impact on the financial system of your failure, and what options are you going to give to your regulators in achieving the orderly wind-down of your bank.

 

 

 

WHO DOES THIS IMPACT?

 

Iain: 30 organizations, 24 globally systemically banks and 6 insurance companies should prepare recovery and resolution plans. But the FSB is also going through a process of defining national SIFIs.

 

Jon: In the United States, it’s estimated through the proposed rule that the FDIC and the Federal Reserve has put forth that it would apply to 124 institutions, both banks, and systemically important non-banks.

 

Seiji Kamiya:  In Japan, four financial institutions are identified as a SIFI. One investment bank, and three commercial banks.

 

 

WHAT ARE REGULATORS TRYING TO ACHIEVE?

 

Iain: They really want to understand the complexity of the financial sector, and within the system as a whole, understanding contagion risk.

 

Jon: The first objective the regulators have is to have transparency and having a good understanding of how these companies are put together and what are the key factors they need to be focused on from a potential resolution or an orderly liquidation perspective.

 

Seiji: Regulators also want to bring a good balance of interest between shareholders, clients and taxpayers.

 

 

BENEFITS

 

Iain: At the present time, there’s a lot of uncertainty of what ultimately RRPs will look like. But the main benefits of an organization in considering RRPs at the moment, is really to be part of the debate.

 

Jon: The initial work that we’ve done with some firms, we’ve already seen them you know go through this exercise of analyzing their legal entities and how they do business and how they provide support functions throughout the organization. And ultimately how they think about how they deploy capital and where they want to focus on in terms of the businesses and legal entities that they operate in. The key challenge is to really approach it more as a strategic exercise as opposed to just a compliance exercise.

 

 

 

WHY KPMG?

 

Iain: Our clients are asking a lot of questions around this. Depending on where they are, the G-SIFIs are asking, what will ultimately a plan look like? We’re being asked by our regulators to go through a data gathering exercise, an analysis exercise, to understand that the connectivity within our organizations and with the wider market. But how far will we have to go?

 

Seiji: We have closely worked not only with financial institutions and regulators, but also other stakeholders of financial institutions as well. So we have independent perspective on the right balance between economic value and regulatory objectives. Through the Regulatory Centers of Excellence, which is the innovative global platform of KPMG’s Financial Services, we can deliver the best practices of financial institutions and regulators in advanced jurisdictions to any other part of the world.

 

Jon: We are really focused on how we can take these very complex issues, and recovery and resolution planning is just one of many regulatory initiatives globally that have a big impact on financial institutions and financial services companies.

 

 

 

www.kpmg.com/regulatorychallenges

In November 2011 the G20 Leaders will endorse recommendations to address the moral hazard posed by Systemically Important Financial Institutions (SIFIs), including the requirement for an adequate, credible, recovery and resolution plan (RRP) from any firm which is assessed by its home authority to have a potential impact on financial stability. In this video hear from Recovery and Resolution Planning specialists Iain Cummings, Jon Greenlee and Seiji Kamiya talking about what RRPs are, who they will impact, what regulators are trying to achieve, and what the benefit to creating one is.
 

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