The Financial Stability Board (FSB) has issued a statement highlighting the importance of resolution planning and loss-absorbing capacity for banks that could be systemically significant or critical if they fail. The focus on such banks, termed "banks systemic in failure," follows lessons learned from the 2023 bank failures, emphasizing the need to maintain progress in ensuring bank resolvability.
The FSB underscores that financial institutions with potential systemic significance should adhere to a resolution regime aligned with the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions. While previous efforts primarily targeted global systemically important banks (G-SIBs), the guidance is now considered relevant for other banks that may have severe implications for the financial system or broader economy if they fail.
"Authorities should assess which banks may be systemically significant or critical if they fail," states the FSB. It emphasizes coordination among resolution authorities and relevant entities to ensure adequate information is available both in normal times and during crises.
Preparedness involves having resources, tools, and powers ready to resolve these banks effectively. "Authorities and banks systemic in failure should be prepared for resolution," according to the statement. Banks are urged to protect their critical functions without causing systemic disruption or relying on taxpayer funds.
Loss-absorbing capacity (LAC) is highlighted as a crucial element, enhancing authorities' ability to resolve failing banks without severe disruptions. The statement notes, "Authorities should consider the need for loss-absorbing capacity." Jurisdictions are encouraged to tailor LAC frameworks based on their unique banking systems while adopting principles similar to those applied to G-SIBs.
Cross-border considerations are also addressed due to interconnected financial systems. The FSB suggests establishing avenues for cross-border information exchange and cooperation when dealing with internationally active banks that may pose systemic risks beyond national borders.
In conclusion, while acknowledging jurisdictional differences in banking characteristics, the FSB encourages ongoing work towards developing effective resolution strategies for all potentially systemically significant banks, thus safeguarding financial stability globally.