FSB Approves Systemic Risk Regulation Policy Proposals

in Bankruptcy & Liquidation, Investment Banks, Living Wills, Systemic Risk Management, U.S. Treasury Department

By: Alex Radetsky

On October 3, 2011, the Financial Stability Board (“FSB”) , an organization comprised of governmental and other financial authorities from around the world, including the SEC, Federal Reserve and Deptartment of Treasury for the U.S., approved a package of policy proposals meant to address systemic risk and “too big to fail” issues which will be submitted to the G20 Summit in November.  The policy proposals include:

  • Standards for effective resolution regimes for financial institutions
  • Requirements that globally important systemically important financial institutions (“G-SIFIs”) develop and submit recovery and resolution plans
  • The development of cooperation agreements and cross-border crisis management groups by home and host regulators of G-SIFIs
  • Additional loss absorbency requirements for G-SIFIs
  • Improved data systems for risk management and assessments of the adequacy of supervisory resources, among other measures to enhance the intensity and effectiveness of the supervision of financial institutions
  • Enhanced international standards for the robustness of core financial market infrastructures

Additional policy proposals approved at the meeting are aimed at the regulation of the shadow banking sector, over-the-counter (“OTC”) derivatives, commodities and securities markets, compensation practices, credit rating agencies, financial stability issues in emerging markets.  In addition, the policy package includes recommendations for a framework to coordinate and monitor the implementation of these new reforms and standards.

The FSB’s press release regarding its October 3 meeting may be found here.

The FSB previously released a report entitled “Consultative Document: Effective Resolution of Systemically Important Financial Institutions,” which proposed international standards, policies and timelines to facilitate recovery and resolution planning for G-SIFIs.  Weil’s summary of this report may be found here and a complete copy of the report is available here.  We will continue to monitor these development and provide timely coverage of major policies or recommendations developed by the FSB and G20.

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