Report on progress on resolution policies and frameworks issued by the Basel Committee
6 July 2011
The Basel Committee on Banking Supervision today issued a report on Resolution policies and frameworks - progress so far. The report reflects the progress being made in the area of cross-border bank resolution since the Basel Committee issued a series of recommendations on this topic in March 2010.
The report also responds to the Financial Stability Board (FSB) November 2010 recommendations on systemically important financial institutions. In its recommendations, the FSB called for an assessment of the legislative and other changes to national regimes and policies needed to accomplish effective resolution of systemically important financial institutions. The Basel Committee report issued today is expected to provide an important input to the Key Attributes of Effective Resolution Regimes currently being developed by the FSB and which will be issued later this month.
As stated in today's report, further work is needed on the implementation of the Committee's cross-border bank resolution recommendations, particularly in the area of resolution of systemically important banks. The key findings of the report are:
Progress has been made in many jurisdictions with the adoption of special administrative resolution regimes aimed at the maintenance of financial stability and the protection of depositors. A critical feature of these regimes is to transfer part or all of a failing bank's assets, liabilities and financial contracts to a bridge bank.
Some jurisdictions continue to lack these and other important legal powers set out in the Basel Committee's 2010 recommendations or continue to rely on general corporate insolvency procedures. Such procedures are too slow, too costly and come too late to resolve a failing bank in manner that ensures continuity of its essential financial functions.
Further work is required on cross-border resolution as complications continue to arise from discrepancies among national regimes. In particular, these relate to legal powers, the ranking of depositor and other creditor claims, and the capacity of national authorities to share information and coordinate actions with resolution authorities in other jurisdictions.
The legal, operational and cross-border complexities underline the crucial importance of effective contingency planning and the need for actions that reduce unnecessary complexity and promote resolvability. Some jurisdictions are working on solutions that involve improved risk management or reductions of intra-group guarantees.
National authorities appear to be at different stages of developing recovery and resolution plans for systemically important financial institutions. In view of the importance of these plans for systemic stability, national authorities will need to move forward quickly in this area.
The Committee's report stresses the need to accelerate reforms of domestic resolution regimes and tools and of frameworks for cross-border enforcement of resolution actions.
The Committee will continue to work with the FSB in its broader effort to reduce the moral hazard of systemically important financial institutions.