EU Parliament Sets its Sights on RRD Early Intervention Powers

The RRD needs to focus less on the issue of individual failing banks and more on ways to resolve a general banking crisis, according to an EU Parliament press release published on 6 November 2012.

In addition, the next priority should be to clearly define the point at which resolution is triggered and control of an institution passes from its management to resolution authorities.  According to the EU Parliament, there must be no “grey zones” as to who is running a bank.

Beyond this, the question of resolution financing must be also addressed.  Clear rules, which allow the use of public funds only once shareholders have been wiped out, should be established.  These arrangements should be supported by the creation of a resolution fund, financed by way of ex ante industry contributions.

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Deadline for G-SIB Resolution Plans Pushed Back

On 5 November 2012, the Financial Stability Board (FSB) published a letter dated 31 October 2012 addressed to the G20 regarding progress made with respect to financial regulatory reforms.

The FSB reported ‘solid but uneven’ progress” in the four priority areas identified by the G20, being:

  • building resilient financial institutions (i.e. Basel III);
  • ending “too big to fail” (i.e. RRP);
  • strengthening the oversight and regulation of shadow banking activities; and
  • completion of OTC derivatives and related reforms.

On the subject on ending “too big to fail”, the FSB noted that a peer review of national actions taken to legislate its “Key Attributes of Effective Resolution Regimes” document will now be published in the first half of 2013.  More importantly, however, on the subject of resolution planning for Globally Systemically Important Financial Institutions (G-SIFIs), the FSB confirmed that the deadline for completion of operational resolution plans for Globally Systemically Important Banks (G-SIBs) has been extended by six months until mid-2013.  Consequently, the FSB’s peer-based resolvability assessment process will now be delayed until the second half of 2013.

Changes to the G-SIFI List

In November 2011, the Financial Stability Board (FSB) published its initial list of Global Systemically Important Banks (G-SIBs).  On 1 November 2012, the list was updated, with BBVA and Standard Chartered being added to the list and Commerzbank, Dexia and Lloyds all being removed.

The significance of being classified as a G-SIB lies in the fact that, under Basel III, any bank identified as a G-SIB in November 2014 will be required to maintain additional loss absorbency.  This requirement will be phased in between January 2016 and January 2019 and ranges between 1% and 2.5% of risk weighted assets depending on the significance of the individual firm.  G-SIBs are also required to meet higher supervisory standards for risk management functions, data aggregation capabilities, risk governance and internal controls.  Any firm newly designated as a G-SIB is required to implement certain resolution planning requirements within specified deadlines.  Furthermore, even where a financial institution is no longer designated as a G-SIB it will continue to be subject to the requirement to prepare an RRP to the extent that it is assessed by its national regulator to be systemically significant or critical in the event of failure.

For the first time, the current list of G-SIBs has been allocated into provisional buckets corresponding to the required level of additional loss absorbency, as set out in more detail in Annex 1 below.  The timetable for implementation of resolution planning requirements for newly designated G-SIFIs is detailed in Annex 2 below.

Annex 1

  

Bucket

G-SIB in alphabetical order within each   bucket

5

(3.5%)

(Empty)

 4

(2.5%)

Citigroup

Deutsche Bank

HSBC

JP Morgan Chase

3

(2.0%)

Barclays

BNP Paribas

 2

(1.5%)

Bank of America

Bank of New York Mellon

Credit Suisse

Goldman Sachs

Mitsubishi UFJ FG

Morgan Stanley

Royal Bank of Scotland

UBS

1

(1.0%)

Bank of China

BBVA

Group BPCE

Group Credit Agricole

ING Bank

Mizuho FG

Nordea

Santander

Societe Generale

Standard Chartered

State Street

Sumitomo Mitsui FG

Unicredit Group

Wells Fargo

Annex 2

G-SIFI Requirement Deadline for completion following date of G-SIFI designation
Establishment of Crisis Management Group (CMG)

6 months

 

Development of recovery plan

12 months

 

Development of resolution strategy and review within CMG

12 months

 

Agreement of institution specific cross-border cooperation agreement

18 months

 

Development of operational resolution plan

18 months

 

Conduct of resolvability assessment by CMG and resolvability assessment process

24 months