Claudia Buch: Bank resolution - delivering for financial stability Session II: achieving a home-host balance

Introductory statement by Prof Claudia Buch, Vice-President of the Deutsche Bundesbank, at the Single Resolution Board (SRB) Annual Conference 2021, Frankfurt am Main, 14 October 2021.

Central bank speech  | 
21 October 2021

Thank you very much for inviting me to speak on this panel. The Single Resolution Board (SRB) is an absolute essential part of the new regulatory infrastructure that has been put into place following the global financial crisis. Effective bank resolution has important implications for financial stability – not only in terms of dealing with a crisis situation but also in terms of reducing the probability and severity of a crisis.

And this session is a dealing with key element of a resolution regime: achieving a home-host balance. Today, I would like to make three main points:

  1. Trust and credibility are the keys to an effective resolution regime. They are important for balancing the interests of home and host authorities. Home and host authorities need to be able to trust that the smooth resolution of a cross-border bank will indeed be possible. They need credible safeguards and commitments to cooperate in case of a crisis. This, more broadly, also contributes to a functioning banking union and sustainable patterns of cross-border banking.
  2. Transparency and clear rules about the distribution of capital and bail-in-able debt support the credibility of resolution. Resolution will work only if the rules that have been announced ex ante are also applicable in a crisis situation. A credible resolution regime is thus the key to resolving home-host issues.
  3. Evidence from an evaluation of the too-big-to-fail (TBTF) reforms by the Financial Stability Board (FSB) shows that reforms pay off and enhance credibility. Market prices of debt increasingly reflect the prospects of resolution and a potential bail-in. At the same time, implicit funding subsidies of systemic financial institutions have not fully been eliminated, indicating the need for further work.