By Regulation Asia | Published on June 29, 2020
The assessment found that TBTF reforms did make banks more resilient and solvable, but barriers to bank solvability still needed to be addressed. The Financial Stability Board (FSB) has published its assessment of TBTF reforms for systemically important banks for public consultation.
The TBTF reforms, which cover loss absorption, strengthen supervision and standards for banking solutions, were endorsed by the G20 following the 2008 global financial crisis and have been implemented in FSB jurisdictions over the past decade. The latest assessment assesses the extent to which the reforms have reduced systemic and moral hazards associated with systemically important banks, and the wider impact of these reforms on the financial system.
The assessment found that TBTF reforms did make banks more resilient and resolvable, with a better ability to capitalize and absorb losses. "The capital ratios of systemically important banks globally have doubled since 2011," the FSB said. In addition, many FSB jurisdictions have introduced comprehensive bank resolution regimes and are implementing resolution plans, Provides authorities with a number of options to deal with stressed banks. "Solution planning, together with enhanced supervision, has significantly improved the operational capabilities of banks and authorities, as well as the accuracy and detail of the information provided to them," the report said. The assessment also found that the benefits of TBTF reforms significantly outweighed the costs, and that "represents a net benefit to society".
No significant negative impact has been observed, and other market players have stepped in to fill the gap as large banks reduce their activities. The assessment found no signs of increased market fragmentation as a result of the reforms. However, the FSB found that there were still gaps that needed to be addressed, namely, barriers to bank solvability remained, continued reliance on state support for failing banks, and insufficient reporting and disclosure. The Consultation Report is available here for consultation until 30 September 2020. The final report is expected to be published in early 2021.