International banks that have a strong presence in multiple countries are still not meeting the expectations of the Financial Stability Board.
According to a statement issued by the board, countries must enact legislation in order to ensure that the decisions of other countries in shutting down a bank are both recognized and supported.
The board says that issues regarding cross-border resolutions for banks are still at large. Indeed, the FSB claims that temporary stays on terminations rights, as well as certain policies regarding “bail-ins”, impose losses to both creditors and shareholders, while also preventing proper resolutions from being achieved.
FSB representative Elke Koenig said, “The results from the first round of the Resolvability Assessment Process that home and host authorities of globally systemic banks have completed this year have shown that we have more work to do before we can claim that such firms are truly resolvable.”
Also, the FSB has updated its list of the 30 largest banks in the world. New to the list is the China Construction Bank Corp., which has taken the place of Spain’s Banco Bilbao Vizcaya Argentaria SA. Furthermore, the FSB downgraded the rating for the Royal Bank of Scotland Group Plc.
Based on new recommendations from the FSB, new legislation should be created to make the shutting down of banks more feasible. The recommendations come in regards to a public consultation that began last year.
Additionally, the FSB published advice concerning information sharing between authorities when globally significant financial institutions are involved.
Meanwhile, the FSB is also requesting comments on proposal regarding the temporary funding of institutions that are in the process of being shut down. The board says that it needs “effective resolution strategies” for the biggest insurers of the world.
“The consultations and final guidance will provide practical orientation in some of the areas where we identified impediments to resolvability,” Koenig said.
It’s worth noting that the FSB has been charged by the Group of 20 Nations for trying to cover-up taxpayer-funded bailouts. These bailouts were commonplace during the 2008 financial crisis. The G20 has imposed measures of capital surcharges on globally significant lenders and greater loss-absorbing capacity requirements.