Report and recommendations of the Cross-border Bank Resolution Group - final paper
The Basel Committee's Cross-border Bank Resolution Group developed a set of recommendations that resulted from its stocktaking of legal and policy frameworks for cross-border crises resolutions and its follow-up work to identify the lessons learned from the global financial crisis which began in 2007. The financial crisis illustrates the importance of effective cross-border crisis management. The scope, scale and complexity of international financial transactions expanded at an unprecedented pace in the years preceding the crisis, while the tools and techniques for handling cross-border bank crisis resolution have not evolved at the same pace. Some of the events during the crisis revealed gaps in intervention techniques and the absence in many countries of an appropriate set of resolution tools. Actions taken to resolve cross-border institutions during the crisis tended to be ad hoc, severely limited by time constraints, and to involve a significant amount of public support.
The Basel Committee's recommendations, as set out below, are intended to strengthen national resolution powers and their cross-border implementation. They also provide guidance for firm-specific contingency planning as banks, as well as key home and host authorities, should develop practical and credible plans to promote resiliency in periods of severe financial distress and to facilitate a rapid resolution should that be necessary. The recommendations also aim to reduce contagion by advocating the use of risk mitigation mechanisms such as netting arrangements, collateralisation practices and the use of regulated central counterparties. Strengthening the use of these and other measures would help limit the market impact of a bank failure.
The Basel Committee's recommendations relate to the following areas:
- Recommendation 1: Effective national resolution powers
- Recommendation 2: Frameworks for a coordinated resolution of financial groups
- Recommendation 3: Convergence of national resolution measures
- Recommendation 4: Cross-border effects of national resolution measures
- Recommendation 5: Reduction of complexity and interconnectedness of group structures and operations
- Recommendation 6: Planning in advance for orderly resolution
- Recommendation 7: Cross-border cooperation and information sharing
- Recommendation 8: Strengthening risk mitigation mechanisms
- Recommendation 9: Transfer of contractual relationships
- Recommendation 10: Exit strategies and market discipline
A consultative version of this paper was released in September 2009.