The disorderly collapse of Lehman Brothers in September 2008 provided a sharp and painful lesson of the costs to the financial system and the global economy of the absence of powers and tools for dealing with the failure of a SIFI. Lehman Brothers was the last SIFI allowed to fail during the last financial crisis. All other SIFIs at risk was supported by public capital injections, asset or liability guarantees, or exceptional liquidity measures undertaken by central banks. While this was necessary for economic and financial stability reasons, public bail-outs placed taxpayer funds at unacceptable risks and has increased moral hazard in a very significant way. A recent stock-take undertaken by the Basel Committee on Banking Supervision (BCBS) of progress in implementing its Recommendations on Cross-border Bank Resolution of March 20101 shows that while some jurisdictions have enacted or are considering legislative changes, many jurisdictions continue to lack important resolution tools. The report underlines the need to accelerate reforms of domestic resolution regimes and tools and of frameworks for cross-border enforcement of resolution actions.
At their Summits in Pittsburgh, Toronto and Seoul, the G20 Leaders asked the FSB to set out more effective arrangements for resolution of SIFIs. The Annexes to this document set out the proposed policy recommendations, which are described in the following pages. They comprise four key building blocks: Strengthened national resolution regimes that give a designated resolution authority a broad range of powers and tools to resolve a financial institution that is no longer viable and there is no reasonable prospect of it becoming so. Cross-border cooperation arrangements in the form of bilateral or multilateral institution-specific cooperation agreements, underpinned by national law, that will enable resolution authorities to act collectively to resolve cross-border firms in a more orderly, less costly way. Improved resolution planning by firms and authorities based on ex ante resolvability assessments that should inform the preparation of RRPs and that may, if necessary, require changes to individual firm structures and business practices to make them more effectively resolvable. Measures to remove obstacles to resolution arising from fragmented information systems, intra-group transactions, reliance on service providers and the provision of global payment services. Legislation or regulatory changes will be required in many jurisdictions to implement these recommended measures. Moreover, ensuring that financial institutions are resolvable under the current resolution regimes will require a reorientation of the supervision of SIFIs.