The trade association of global banks, the Institute of International Finance (IIF), Thursday released a report calling for more work to ensure the effective cross-border resolution of financial institutions.
The IIF said that it believes that a system can be created to allow big banks to fail. “One of the most important lessons of the financial crisis was that banks must be able to take risks, must be able to fail, and therefore must be capable of being resolved upon failure. With the determination of national authorities and the cooperation of private financial institutions, we believe that an effective resolution system can be put in place,” said Douglas Flint, chairman of the board of the IIF and group chairman, HSBC.
Flint said that confidence in the financial system will be enhanced if the public believes that troubled banks can be wound down without causing systemic disruptions and that taxpayers won’t have to foot the bill. “We believe that we are now moving towards a situation where these two conditions can be met,” he said.
The report also calls on the Financial Stability Board to ensure that national legal frameworks fully comply with its principles for effective resolution. “We believe that the FSB should strengthen its approach to secure effective cross-border resolution of major firms,” said Urs Rohner, chairman of the IIF working group on cross-border resolution and chairman of Credit Suisse AG.
“We are calling on the FSB to take the next step – having set out a strong design for speedy and effective resolution of significant financial institutions within each jurisdiction, it should mandate – not just urge – effective cooperation among jurisdictions on cross-border resolution,” he added. “Our report stresses the need to preserve as much value as possible in any form of resolution, including by respecting group structures.”
The IIF also said it supports the FSB’s call for a suite of resolution tools for all national authorities, including bail-in and other techniques to spread losses appropriately and salvage as much as possible.
Separately, the IIF announced the formation of a special committee on strengthening the framework for preventing and resolving sovereign debt crises, bringing together senior officials from finance ministries, central banks, multilateral institutions and the industry to address core issues of sovereign debt management.
“We need to learn the lessons of the Greek crisis and the broader Euro Area sovereign debt crises to contribute to important improvements in crisis management. The goal of the committee is to develop concrete proposals to enhance crisis prevention and resolution practices,” said IIF managing director, Charles Dallara.