Global Financial Crisis – Drawbacks and Shortcomings

2.1 The global financial crisis unfolding in August 2007 witnessed failure of a few high profile banks and financial institutions, also known as “Too-Big-To-Fail” (TBTF) institutions. The failure of these TBTF institutions had a contagion impact on the whole financial system and interrupted the financial intermediation process, also impacting the payment and settlement services provided by the financial market infrastructures (FMIs). The failure to perform the critical economic functions spilled over to the real economy.

2.2 The authorities had to intervene and bail out the TBTF institutions. In order to contain the contagion effect and avoid the spillover that could undermine financial stability, the authorities introduced an unprecedented range of support measures, including blanket guarantees, liquidity provisions, recapitalization and expanded deposit insurance, which are together termed as government-funded bailouts. In case of some non-bank financial institutions, the authorities tried to use general corporate insolvency procedures leading to disorderly collapse with widespread effects.

2.3 There are several estimates of the cost of the crisis to the public exchequer. The amount of support to the systemically important financial institutions (SIFIs)¹ during the crisis was about 25% of the world’s GDP². Capital injection and asset purchase in G20 countries are estimated at around 2.1% of GDP. Fiscal cost of direct support for advanced G20 countries and emerging market economies has typically been 4% and 11% of GDP respectively. Cumulative output loss in the countries that experienced a systemic crisis is estimated at about 27% of their GDP.

2.4 A few examples here will not be out of place. Banks like Fortis, Dexia, HBOS, Royal Bank of Scotland (RBS), Lloyds, etc. were hit by the financial crisis and were rescued by public money or supported by state guarantees. The Icelandic banks failed because their access to funding collapsed in light of global financial difficulties. The assets of these banks were ring-fenced by a policy decision by the parliament. In the case of Fortis, flaws and inadequacies in the resolution tool kits resulted in the group being split along national lines.

2.5 The chaotic way in which Lehman Brothers was placed into bankruptcy led to a significant loss of market confidence and caused uncertainties about the location and return of client assets. This case reveals legal problems with widespread cross country operations of a financial institution. Cross country coordination under prevailing legal conditions proved difficult as Lehman repatriated all liquid assets to the US and the foreign jurisdictions had no legal claim on the entity. This thus shows that there was in effect a clear failure of cooperation and information sharing at a critical moment: insolvency. The Lehman case also highlights how disorderly bankruptcy can lead to a loss of access to key services, such as payment and settlement services, and may cause a disruption in these systems and across borders. This also showed that the market was not well-placed to withstand the exit of large and heavily interconnected financial institutions due to the negative externalities they posed on the stability of national economies and the global financial system.

2.6 The case of the Anglo-Irish and Icelandic banks shows that solutions adopted were inefficient and bail-in may have offered some alternative depending on the structure of banks. The losses incurred by banks, like Dexia for example, could have been covered by bailing in shareholders and creditors, rather than employing public funds.

2.7 In the case of American International Group (AIG), the losses were caused by the unregulated financial arm of AIG that operated like a hedge fund. The systemic threat of a disorderly bankruptcy was judged to be too large and the US authorities opted to infuse public funds. On being approached by the AIG’s management, the US Government lent a total of USD 183 billion³. This illustrates how public support can lead to an open-ended commitment, involving a large burden on the taxpayer.

2.8 At the time of start of Northern Rock’s problems, the UK did not have a special resolution regime and relied on the traditional resolution tools. Northern Rock faced a severe liquidity problem, caused by the closure of its major funding market for residential mortgage backed securities, and had a heightened probability of experiencing an insolvency problem. Because of the fear of contagion, Northern Rock was not allowed to fail in a way that could have jeopardised the large number of depositors.

2.9 The cases of Fortis, Northern Rock, and Hypo Real Estate (HRE) also display problems associated with shareholders delaying or blocking the resolution path chosen by the authorities. After Fortis was split, the Belgian authorities sought to sell the Belgian entity to BNP Paribas. However, the legal battle involving the need for shareholder approval led to significant delay before the transaction with BNP Paribas could be achieved. Similarly, Northern Rock was encouraged by the authorities to seek a takeover by a different banking group. However, the deal could not be struck because of the requirement of approval from the shareholders, which did not materialise as the offers were considered by them to be materially below the traded share value. The takeover of HRE by the German Government also met with similar problems.

2.10 The financial crisis has in particular illustrated shortcomings in crisis management frameworks of cross-border financial institutions, in addition to the shortcomings in the domestic national resolution frameworks. The collapse of the Icelandic banks and Fortis in the Benelux countries, as also the Dexia and Lehman Brothers showed that resolution of cross-border institutions may pose even more challenges. The reasons for this are manifold, making these institutions more difficult to resolve – (i) involvement of multiple home and host authorities; (ii) different legal systems; (iii) different mandates and objectives of several national authorities involved, and (iv) different standards for cooperation and information sharing arrangements.

2.11 The complexity of group structures also proved to be burdensome in the crisis for the regulatory and supervisory authorities. For example, Lehman Group consisted of 2,985 legal entities that operated in about 50 countries. Many of these entities were subject to host country regulations while supervision was done by the Securities and Exchange Commission (SEC), through the Consolidated Supervised Entities (CSE) programme in the United States. The Lehman structure consisted of a complicated mix of both regulated and unregulated entities and was designed to optimise economic return while achieving compliance with legal, regulatory and tax requirements throughout the world. The functioning of the group was such that a trade performed in one company could be booked in another. The lines of business did not necessarily map to the legal entity lines of the companies. The group was so organised that some essential functions such as management of liquidity were centralised in parent holding company, Lehman Brothers Holding Inc. (LBHI).

2.12 The above cases point towards limitations of extant resolution framework to deal with large-size financial institutions with complex operations, lack of cross border resolution arrangements, limitations of depositor protection arrangements and moral hazard associated with government bailouts.

2.13 The global financial crisis also illustrated the fact that there were no effective resolution tools in place to deal with SIFIs at an early stage. Majority of the jurisdictions had some form of bank insolvency procedure for exercising resolution measures for problem banks, but it was not extended to large and complex institutions. The prevailing bankruptcy framework that did exist in a number of jurisdictions may have worked well for resolution of smaller and domestically oriented banks as the authorities could find another bank to take over the problem bank or the bank could be liquidated with losses to creditors and uninsured depositors. The extant resolution toolkits were also not designed to take into account the special nature of credit institutions.

2.14 This is clearly observable in the briefs given in Box 2.1, which details the resolution measures exercised in case of Fortis, Dexia, Washington Mutual and Icelandic banks.

BOX 2.1
Glitnir bank, Kaupthing bank and Landsbanki (Iceland)⁴

The Icelandic banks were finding difficulties in refinancing their short term debt. The banks were under huge foreign debt, with three major banks holding more than €50 billion in debt. Further, there was sharp depreciation in the Icelandic currency Króna, further adding to the woes. In fact, high interest rates in the period resulted in carry trading in the Króna. Central bank’s intervention also could not stem the slide. High inflation was exacerbated by the Central Bank of Iceland that was increasing liquidity in the system. Other factors that were pivotal in the crisis were newspapers reports speculating nationalisation of Glitnir, high leverage of Kaupthing and other banks, and deteriorating Icelandic economy. Finally, Central Bank of Iceland and government could not guarantee payment of bank debts (especially depositors), leading to collapse of banks.

Measures taken by the government

• The government package provided powers to the Icelandic Financial Supervisory Authority (FME) to take over the functioning of Icelandic banks without nationalisation. It accorded preferential treatment for depositors in the event of liquidation. The government also allowed full guarantee to the retail deposits for Icelandic branches of Icelandic banks.

• On September 29, 2008 Icelandic government announced nationalisation of Glitinir bank with the purchase of a 75% stake for €600 million. Government informed that in absence of intervention, the bank would have ceased to exist. However, Glitnir was subsequently placed in receivership on October 7, 2008 by the FME.

• On October 7, 2008 the FME also placed Landsbanki in receivership, though the operations were kept open for business as usual. The deposits of the UK arm of the Landsbanki, viz., Heritable Bank, were transferred by the UK government (under Banking (Special Provisions) Act, 2008) to a Treasury holding company and then to ING Direct for GBP 1 million.

• The Icelandic government also directed substantial reduction in repayment to foreign investors that included investors from UK.

• In UK, the internet bank of the subsidiary of Kaupthing bank, viz., Kaupthing Edge was sold to ING Direct by the FSA after default on its obligations. The subsidiary Kaupthing Singer & Friedlander was put into administration. This resulted into a run on the bank and later, on October 9, 2008, FME placed Kaupthing bank into receivership.

• Due to fall in prices of stocks of these banks, their collateral value estimated at 300 billion krónur (€2 billion) also got eroded, and on October 21, 2008 the Central Bank of Iceland asked the remaining independent financial institutions for new collateral against their loans. Sparisjóðabanki bank, also known as Icebank expressed its inability to provide for new collateral and turned to the government for help.

Measures taken by the regulators

• For continued operations of Icelandic banks, FME ring-fenced the operations of Landsbanki and Glitnir. NBI (known as NýiLandsbanki) was set up on October 9, 2008 with 200 billion Krónur in equity and 2,300 billion Krónur of assets and NýiGlitnir was set up on October 15, 2008 with 110 billion Krónur in equity and 1,200 billion Krónur of assets. Kaupthing bank was rechristened as NýjaKaupþing on October 22, 2008 with 75 billion Krónur in equity and 700 billion Krónur of assets. Icelandic government provided equity in the three banks. Glitnir and Kaupthing were provided relief in terms of moratorium on payments to creditors from the Court.

• In UK, deposit insurance was paid under the Financial Services Compensation Scheme (FSCS) for transfer of deposits from the subsidiaries of Landsbanki and Kaupthing to ING Direct as also for insuring retail deposits of these banks.

• The FME took over domestic operations of the three largest banks though the international operations of these banks went into receivership. The country could resurrect banking system that has been pruned down substantially. The result of such austere and prudent measures has reaped dividends as the banks were not affected by the recent European sovereign debt crisis.

Washington Mutual (US)⁵

Washington Mutual (WaMu) business model was to cater to risky consumers of lower and middle class. It provided easy access to the least creditworthy borrowers to get financing. During 2007/08, the bank faced sub-prime losses. The problems of the bank and resultant apprehensions of the customers led to a run on the bank.

Measures by the regulator and the government

• On September 25, 2008, the US Office of Thrift Supervision (OTS) seized WaMu and placed it under the receivership of Federal Deposit Insurance Corporation (FDIC). Thereafter, WaMu’s banking operations were acquired by JPMorgan Chase⁶. All depositors were fully protected and there was no cost to the deposit insurance funds.

• JPMorgan Chase acquired the assets, assumed the qualified financial contracts and made a payment of USD1.9 billion. Claims by equity, subordinated and senior debt holders were not acquired, hence, the bank’s equity holders were wiped out as the stock prices plummeted. JPMorgan Chase acquired all assets but cherry picked liabilities like deposits, covered bonds and other secured debt, as also, all banking operations of WaMu. The assets and liabilities of the parent holding company as also, uninsured deposits over the coverage limit of USD 100,000 were left behind.

• Further, looking at the gravity of the situation, instead of waiting for end of business of Friday when generally the seizure of banks is carried out, the measure was carried out on Thursday. WaMu with more than USD 300 billion in assets was the largest bank failure in the US.

• A certain set of people including shareholders of WaMu felt that the seizure of the bank and giving the assets and branches of WaMu to JPMorgan Chase was not proper. They also felt that the OTS acted arbitrarily and WaMu seizure was politically motivated for the benefit of JPMorgan Chase.

Fortis (Benelux)⁷

Fortis N.V. was a company active in banking, insurance and investment management. It was active in Belgium, Netherlands and Luxembourg (Benelux countries). Fortis was one of the members of the consortium that had announced acceptance of offer of 86% of the outstanding ABN AMRO stock. The acquisition was a part of the plan for rapid expansion of business operations. Fortis had to issue shares (at discount to existing shareholders) to finance this takeover bid. Further, to shore up its capital due to international financial crisis, it had to issue more shares, and eliminate dividend payout. All these factors resulted in fall in share prices, and over a period of time, the deteriorating health of the bank added to the apprehensions of the customers and the resultant withdrawals caused serious liquidity problems for the bank.

Measures by the regulator and the government

• The government of Luxembourg approached Fortis with an offer of assistance. Under the plan, Fortis would receive financial support from a private trust (Shanti Swami Privet Trust) against shares in Fortis bank. The plan also included selling off the Dutch ABN AMRO to the Dutch Government.

• Though other banks showed interest in taking over Fortis, it was partially nationalised on September 28, 2008, with the three Benelux countries investing a total of €11.2 billion (USD 16.3 billion) in the bank. Whereas Belgium took 49% of Fortis's Belgian banking unit for €4.7 billion, the Netherlands paid €4 billion for a similar stake in the Dutch banking business. Luxembourg provided €2.5 billion loan convertible into 49% of Fortis's banking division in that country⁸. At the same time, the initial plan to integrate the operations of ABN AMRO into Fortis was shelved.

• On October 3, 2008, the Dutch government announced purchase of the Dutch banking and insurance divisions of Fortis for €16.8 billion (USD 23.3 billion). Thereafter, Luxembourg government & SS Trust also increased their control from 49% to 52%. Luxembourg also bought parts of the Fortis company for a symbolic price of €1.

• On October 21, 2008, the Dutch government created a strong Dutch bank by announcing merger between ABN AMRO and Fortis Bank Netherlands.

• After the Dutch action, Belgian government arranged merger of Fortis Belgian unit (including the insurance and banking subsidiaries) with BNP Paribas as a majority shareholder. Though the Belgian and Luxembourg governments were reduced to minority shareholding, they retained blocking power in exchange for shares in BNP Paribas.

• Thereafter the Belgian government purchased the remaining shares of the Fortis Bank from Fortis Group and sold 75% of those to BNP Paribas, at an evaluation of €11 billion for the total company, to be paid by shares of BNP Paribas, thereby becoming the biggest shareholder in BNP Paribas (at 12%).

• It is reported that Dutch were left out of negotiations till a later date causing friction and distrust, and that if all three countries had been involved from the start, they could have saved Fortis in its entirety. The subsequent Dutch action resulted in bad press for Belgian government as general feeling was that Belgium was left with the messy parts of the company. Negotiations with BNP Paribas did not go smoothly, as they wanted only the banking parts and not the 'toxic' structured products. Belgium government had to agree to let Fortis Group deal with the 'toxic' structured products. The banking business was sold to BNP Paribas.

Dexia (Belgium)⁹

Dexia N.V./S.A., is a Franco-Belgian bank active in banking, asset management, and insurance. During the sub-prime crisis, the bank faced losses at its US subsidiary FSA and from a huge loan to troubled German bank Depfa. It applied for bailout and received help from Belgian government in terms of capital injection and guarantees. The bank posted huge losses after writing down the Greek debt. It got the dubious distinction of being the first casualty of the 2011 European sovereign debt crisis.

Measures by the regulator and the government

Initial discussions pointed towards breakup of bank. On October 10, 2011, Belgian government announced purchase of the Belgian banking arm for Euro 4 billion. Luxemburg and French operations were sold to other financial institutions. For the remaining troubled assets, the governments of Belgium (60.5%), France (36.5%) and Luxembourg (3%) provided guarantees up to €90 billion. On July 27, 2012, 50% share in RBC Dexia Investor Services was sold to Royal Bank of Canada (RBC) and was renamed RBC Investor Services.

Need for an Effective Resolution Regime

2.15 A sound and effective resolution regime and a legal framework for cross-border cooperation could address shortcomings mentioned above. Had the relevant powers and tools been available to the relevant authorities in the cases of banks and financial institutions that were bailed out with public money and a legal framework for cross-border banks was existent and enforceable, the authorities could have achieved solutions that were less disruptive and did not involve use of taxpayers’ money for resolution of cross-border banking groups. A sound resolution regime means that resolution authority adopts resolution tools that provide least cost solution and maintain financial stability rather than simply bail-out using taxpayers’ money.

2.16 The case of Bradford & Bingley illustrates such an example. When, in September 2008, the UK’s Financial Services Authority (FSA) determined that the bank no longer met threshold conditions, UK authorities took Bradford & Bingley into temporary public ownership in terms of the emergency legislation, the Banking Special Provisions Act, which later became the Banking Act, 2009. Thanks to extensive prior contingency planning, the UK was able, over the space of a single weekend, to auction Bradford & Bingley’s retail deposits, branches and associated systems to Santander, leaving the rest (mortgage operations) in public ownership which was liquidated over time. The Bradford & Bingley branches opened for business as usual on Monday morning with no interruption in service. Another example is Denmark's Amagerbanken - early in 2011, the Danish authorities demonstrated both their willingness and capacity to use the recently created bank resolution framework, imposing a 41% write-down of senior debt and unguaranteed deposits, and in so doing sent a strong signal that they may do so again in the future. Until this time, the Danish authorities had supported the unguaranteed depositors and senior creditors of failing banks via blanket guarantees, guarantees on debt issuance by the banks, and hybrid capital injections.

2.17 The UK used its special resolution regime (Banking Act, 2009) first on the Dunfermline Building Society, which was small in operations. This was a case where three resolution tools were exercised in one go – the transfer powers, bank administration procedure and bridge bank. During the weekend, depositors, branches and the head office, and prime mortgage assets were transferred to Nationwide Building Society; the social housing loan book and some associated deposits were transferred to a bridge bank owned and run by the Bank of England; and worse quality assets, mainly commercial property loans and bought-in mortgages, were placed into a building society special administration procedure. The bridge bank was run for three months and finally sold. With the exercise of timely effective resolution tools, the resolution of Dunfermline was a success and on Monday morning depositors knew their money was safe. The only problem was the lack of proper resolution funding arrangements. It is, however, not clear if the tools that can be applied in case of a small bank can work in resolving a big bank/financial institution.

Reforms in Resolution Regimes

2.18 The financial crisis highlighted the need to significantly enhance existing resolution regimes. Many jurisdictions recognized the need to enhance resolution powers, enforce recovery and resolution planning measures, strengthen arrangements for domestic and cross-border cooperation in dealing with failing financial institutions, and develop mechanisms to recoup any public funds used in resolution. Moreover, an effective resolution regime would enhance market discipline by encouraging counterparties to focus more closely on the financial risks of the institution, fixing responsibility on the senior management and imposing losses on shareholders and, where appropriate, other creditors.

Action taken by jurisdictions

2.19 Work at the international level is under progress to address not only the issues of having effective national resolution frameworks, but also tackling the problems of complex group structures and cross-border crisis resolution mechanism. The reform process is at various stages in FSB jurisdictions. While some jurisdictions that were directly affected by the crisis have already undertaken major legislative reforms since the financial crisis to develop new or revise their existing resolution regimes, several other jurisdictions are in the process of adopting or implementing or considering those reforms to further strengthen their resolution regimes. Nine jurisdictions have recently enacted relevant legislation and are preparing for implementation of the rules and regulations.

2.20 Eight jurisdictions¹⁰ and the European Commission have issued documents for public consultation and/or are in the process of preparing draft legislations to further strengthen their resolution regimes, including by extending the regime to insurers, securities or investment firms and/or FMIs. In addition, nine jurisdictions¹¹ are considering a variety of additional reforms to their resolution regimes. Several others are still planning to introduce reforms requiring enhanced resolution powers, undertaking more formal recovery and resolution planning, strengthen arrangements for domestic and cross-border cooperation, etc. for financial institutions that could have a systemic impact.

2.21 Switzerland revised its existing special resolution regime contained in the Banking Act¹² in 2011 and 2012 to include specific requirements for systemically important banks and additional restructuring provisions. The provisions in the Banking law became effective on September 1, 2011 and March 1, 2012 respectively, the Banking Insolvency Ordinance became effective on November 1, 2012 and the Banking Ordinance on January 1, 2013. The UK and USA have enacted separate legislations, i.e. Banking Act, 2009 and Dodd-Frank Act, 2010 respectively for resolution of credit institutions and SIFIs respectively. Germany has enacted the Restructuring and Orderly Liquidation of Credit Institutions in December 2010 for resolution of banks. Canada amended the financial institution restructuring provisions of the Canada Deposit Insurance Corporation Act (CDIC Act) in March 2008, allowing the CDIC to act as a receiver, to assign assets and liabilities of a financial institution, including financial contracts, to a bridge institution. European Union is working to prepare a comprehensive resolution regime for all its member States. It has, in June 2012, published the draft framework for crisis management in the financial sector.

2.22 After the crisis, significant efforts have been made by the US in adopting a framework for the resolution of SIFIs by enacting Dodd-Frank Act on July 21, 2010. A framework for resolution for banks and other financial institutions existed in the US under respective regulators and it worked well for relatively small and medium size institutions. The resolution framework as envisaged under Dodd Frank framework makes a distinction between systemic and non-systemic institutions. The financial firms that are non-systemic are resolved as per their respective laws, while the provisions of Dodd Frank Act apply in case of systemically determined firms. The Dodd-Frank Act also provides for a framework for better coordination among authorities, domestically and internationally, in recognition of the complexity and global reach of many SIFIs. The US regulators have promulgated rules implementing certain provisions of the Dodd-Frank Act and continue to develop rules to implement other provisions.

2.23 Significant reforms have been initiated in the UK as well, with clarification in roles played by different agencies. Pre-crisis, the resolution of UK banks had relied on general corporate insolvency law. The Bank of England (BoE) now acts as the lead resolution authority for failing UK banks and building societies under the Special Resolution Regime (SRR) introduced by the Banking Act, 2009. The Banking Act establishes a permanent resolution framework built around a SRR for resolving banks, which includes a set of directed transfer powers (referred to as “stabilization powers” in the Banking Act) and a Bank Insolvency Procedure (BIP) for winding up insolvent banks in a manner protecting insured depositors. The Banking Act, 2009, inter alia, sets out the trigger points for invoking the SRR, the objectives of the SRR, the various stabilization (i.e., transfer) options under the SRR, and the tools for achieving the desired results. The Banking Act confers powers on the BoE and Her Majesty’s Treasury (HMT) to effect specific stabilization options in various situations and creates an obligation to consult with other authorities.

2.24 In the light of challenges faced in the European Union (EU) region because of complex cross-borders operations of banks, EU has proposed a Directive establishing a framework for the recovery and resolution of credit institutions and investment firms. The Directive establishes a regime relating to the recovery, resolution and orderly dissolution of failing credit institutions and certain investment firms and their subsidiary financial institutions and firms that are covered by the supervision of the parent undertaking on a consolidated basis. The regime also applies to financial holding companies, mixed financial holding companies, mixed activity holding companies and branches of institutions having their head office outside the EU under the specific conditions laid down in the Directive. The proposed Directive requires EU member states to appoint one or more public administrative authorities as resolution authorities that can be central banks, financial supervisors, deposit insurance agency or special authorities. However, if a resolution authority is established within a supervisory institution, then the functional separation of two activities is suggested in order to minimise the risk of supervisory forbearance. In terms of institutional design for cross-border resolution, the proposed Directive envisages that group-level resolution authorities shall establish resolution colleges with a clear leadership and with the participation of the European Banking Authority (EBA). All the national authorities involved in the resolution of institutions should be represented in resolution colleges.

2.25 The progress in legislative reforms as well as in formulating special resolution regimes for financial institutions in various jurisdictions are detailed in Annex 1.

Thematic Peer Review¹³ on Resolution Regimes across Jurisdictions

2.26 The Financial Stability Board (FSB) conducted its first thematic peer review of all FSB member jurisdictions to evaluate their existing resolution regimes and any planned changes to those regimes using the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions (Key Attributes) as a benchmark. The review provides a comparative analysis of the overall legal, institutional and policy framework of existing resolution regimes, both across individual Key Attributes and across different financial sectors (banking, insurance, securities or investment firms, and FMIs). The review focuses primarily on those Key Attributes that cover the core provisions of national resolution regimes applicable to any financial institution that could be systemically important or critical if it fails. As such, the review has not examined the implementation of those Key Attributes (Key Attribute 8 relating to Crisis Management Groups, and Key Attribute 9 relating to institution-specific cross-border agreements) that are relevant and apply only to the G-SIFIs. The peer review report was published on April 11, 2013. The key features of the findings of the thematic peer review are briefed in Annex 2.

2.27 The peer review highlights that while major legislative reforms have already been undertaken by some FSB jurisdictions (particularly those that got directly affected by the financial crisis) to develop special resolution regime, several jurisdictions are at an early stage of reforming their resolution regimes. The resolution regimes are generally more developed and advanced for banks and progressively less for insurers, securities or investment firms and FMIs. This shows that the mandates as well as powers as specified in the Key Attributes are not available for resolution of insurers, securities or investment firms and FMIs. Powers for non-bank financial institutions are often supervisory in nature or are limited to firm liquidation or wind up at the initiative of the supervisor or in some cases through some form of specially adapted insolvency regime.

2.28 Most of the jurisdictions lack powers to take control of the parent or affiliates of failed financial institution particularly when the financial holding company or affiliates are un-regulated. Similarly, cross-border cooperation and coordination is less well-developed across all sectors in most of the jurisdictions owing to lack of consistency in national legal frameworks. Moreover, very few jurisdictions have ability to give effect to foreign resolution actions, which can undermine the legal certainty of resolution actions initiated in home jurisdiction in case of a cross-border financial institution. Another major weakness highlighted is the power to share non-public information with other domestic and foreign authorities for the specific purpose of resolution of a particular financial institution.

Multilateral Global Initiatives

2.29 The financial institutions, especially the banks and insurance firms, have so far been considered to be the most heavily regulated sectors of the global economy. Given the central role banks play in any economy, a safety net framework has evolved over a period of time to prevent the failure of individual banks, or resolve it in a non-disruptive manner, if necessary. The safety net typically consists of prudential regulation and supervision, lender of last resort for providing temporary liquidity support, resolution framework and deposit insurance. The steps have also been taken to strengthen the regulation and supervision of other non-bank institutions, especially the insurance sector and the FMIs. These roles are played by different authorities or combined in one or more agencies.

2.30 During the recent financial crisis, capital standards proved to be inadequate in terms of quantity as well as quality on a going concern basis. The resolution framework for SIFIs did not exist, though the regime worked for small and medium-sized banks. The emphasis since the crisis has been on ensuring that every jurisdiction has an effective financial safety net and crisis management frameworks in place and development of additional measures that could be taken to address the risk of failure of SIFIs, including banks and non-banks.

2.31 Since the global financial crisis, there has been increased focus on financial crisis management. A consensus has emerged that addressing the “too-big-to-fail” (TBTF) problem requires a multipronged approach and integrated set of policies. This aspect prompted the G20 to initiate various initiatives to make the financial system more resilient as well as develop methodologies and standards to resolve the moral hazard problems. The global initiatives to strengthen the financial regulatory system have been driven by the G20 under the auspices of the Financial Stability Board (FSB), the Basel Committee on Banking Supervision (BCBS) and the International Association of Insurance Supervisors (IAIS), to address, among others, the moral hazard risk posed by the TBTF institutions.

Policy Measures to address SIFIs

2.32 The BCBS, based on an extensive stock-taking of legal and policy frameworks for cross-border resolutions and follow-up work on lessons learnt from the crisis, published in March 2010 a set of recommendations to facilitate effective cross-border bank resolutions (BCBS Recommendations)¹⁴.

2.33 Micro prudential regulations and enhancing resiliency: Learning from the crisis, the Basel Committee published Basel III rules¹⁵ in December 2010, which aim at strengthening micro prudential regulation as well as address the systemic risk which had not been addressed hitherto in financial regulation. The objectives of Basel III are to ensure that a crisis of such magnitude does not recur.

2.34 Reducing moral hazard posed by SIFIs: In October 2010, the FSB, addressing the TBTF problem, released its Report on SIFI Framework for Reducing the Moral Hazard posed by Systemically Important Financial Institutions (SIFIs)¹⁶ with 51 recommendations in 5 areas including SIFI resolution, as under:

• Global SIFIs must have higher loss absorbency to lower probability and impact of failure;

• SIFI resolution must be a viable option without taxpayer solvency support;

• SIFI supervision must be more effective to ensure proactive detection of problems and early intervention;

• Core financial infrastructures must be strengthened to lower contagion risk; and

• Effective and consistent implementation of national SIFI policies must be assured.

2.35 Effective resolution of financial institutions: The FSB, in October 2011, developed an international standard – termed as Key Attributes of Effective Resolution Regimes for Financial Institutions¹⁷ – as a point of reference for reform of national resolution regimes, setting out the responsibilities, instruments and powers that all national resolution regimes should have to enable authorities to resolve failing financial firms in an orderly manner and without exposing taxpayers to the risk of loss. In Cannes (November 2011), the G20 endorsed the FSB's core recommendations for effective resolution (Key Attributes of Effective Resolution Regimes for Financial Institutions), which jurisdictions are expected to implement to achieve these outcomes.

2.36 With the adoption by the FSB Plenary and endorsement by the G20 Leaders at the Cannes Summit, the FSB has laid down a work plan for full implementation of the Key Attributes by FSB member jurisdictions. A ‘Resolution Steering Group’ (ReSG) has been constituted under the FSB Steering Committee for supporting and monitoring the implementation of the FSB proposals.

2.37 Identification and higher loss absorbency requirements for SIFIs

• Global systemically important financial institutions (G-SIFIs): The SIFIs, especially those that operate cross border, create negative externalities – failure or impairment of large, interconnected global financial institutions can send shocks through the financial system, which in turn could spill-over to the real economy – which the current regulatory policies do not fully address. In order to limit such cross-border negative externalities on the global financial system and related economies, the BCBS, in November 2011, published the rules text¹⁸ on the assessment methodology for global systemically important banks (G-SIBs) and their additional loss absorbency requirements beyond the minimum Basel III standards. The additional loss absorbency requirements for G-SIBs will begin to apply from January 2016, applying initially to G-SIBs identified in November 2014, with full implementation by January 2019.

• Domestic systemically important banks (D-SIBs): The FSB and BCBS have finalised and published, in October 2012, a principles-based minimum framework for addressing the externalities posed by D-SIBs¹⁹. The framework focuses on the impact that the distress or failure of D-SIBs will have on the domestic economy. The national authorities are required to apply requirements to banks identified as D-SIBs in line with the phase-in arrangements for the G-SIB framework, i.e. from January 2016.

• Global systemically important insurers (G-SIIs): The International Association of Insurance Supervisors (IAIS) has, in July 2013, published an assessment methodology for identification of G-SIIs²⁰ and a set of policy measures that will apply to them. These policy measures, that are consistent with the policy framework published by the FSB in November 2011, include recovery and resolution planning requirements under the FSB’s Key Attributes, enhanced group-wide supervision, and higher loss absorbency requirements for non-traditional and non-insurance (NTNI) activities²¹. The assessment methodology comprises of 20 indicators segregated into five categories, viz. size, global activity, interconnectedness, NTNI and interconnectedness (together 80-90%). Supervisory judgement will play an important role in such assessments.

Guidance papers on recovery and resolution planning

2.38 As a part of its overall objective of developing policy measures for TBTF and moral hazard issues, and considering that the effective recovery and resolution planning in advance is the key to achieving the objective of effective resolution regime, the FSB published, on July 16, 2013, three guidance papers to assist authorities and financial institutions in implementing the recovery and resolution planning requirements under the Key Attributes. These documents are – (i) Guidance on Developing Effective Resolution Strategies²²; (ii) Guidance on Identification of Critical Functions and Critical Shared Services²³; and (iii) Guidance on Recovery Triggers and Stress Scenarios²⁴.

Guidance on Developing Effective Resolution Strategies

2.39 The guidance is aimed at national authorities to assist them in drawing up, developing and maintaining their resolution strategies and operational resolution plans for SIFIs. The resolution strategies provide the key elements of the approach to resolution, which would involve use of one or in combination of resolution tools along with the relevant resolution powers in order to maintain financial stability and protecting critical functions without exposing taxpayers to loss. On the other hand, the operational resolution plan provides more specific details regarding the entities or firms to which the resolution powers are to be applied by one or more national resolution authorities, the conditions under which the plan might be implemented, and funding arrangements as well as the actions needed to implement the resolution strategy.

2.40 The guidance document lays down two general approaches, i.e. Single point of entry (SPE), and Multiple point of entry (MPE), that are presently followed by the CMGs for resolution planning. The SPE involves the application of resolution powers at the top holding or parent company level by a single resolution authority, mostly the jurisdiction responsible for the global consolidated supervision of a group. The MPE involves the application of resolution powers by two or more resolution authorities to multiple parts of the group simultaneously, including strategies in which a group is broken into two or more separate parts. While the resolution of these parts would be under the direction or control of two or more national authorities, the home authority should play a role on ensuring that the resolution is coordinated, given the complexities and potential interdependencies.

2.41 The successful implementation of a chosen resolution strategy will depend on a range of factors and considerations. The authorities should, among others, consider sufficient loss absorbing capacity, position of loss absorbing capacity in the creditor-hierarchy, and the critical economic functions and shared services provided by the particular financial institution. The loss absorbing capacity, which may take the form of equity, subordinated debt, senior unsecured debt, and other unsecured uninsured liabilities, needs to be available in sufficient amounts and at the right location to facilitate a recapitalisation or orderly wind down of the firm. The choice of the strategy needs to take account of the existing structure and business model of the individual financial institution and its particular characteristics. The critical procedural requirements and conditions as well as legal enforceability for applying the resolution powers by home and host authorities, etc. are other important factors that should be considered in the choice of a preferred resolution strategy. It should also consider some fall-back options in case the preferred resolution strategy cannot be implemented.

Guidance on identification of critical functions and critical shared services

2.42 The FSB’s guidance document on identification of critical functions and critical shared services is aimed at authorities and crisis management groups (CMGs) for their evaluation of the criticality of functions that firms provide to the real economy and financial markets. The aim is to promote a common understanding of which functions and shared services are critical by providing definitions and evaluation criteria. It should help to ensure that the resolution strategy and operational plan include appropriate actions that help maintain continuity of these functions.

2.43 Though all products and services provided by financial institutions would have at least some impact on the economy and on financial stability if suddenly suspended, focus should be on those activities that have the most significant impact on financial stability. Such identification would help in prioritization of the resources of the firm to support these critical areas in the event of a failure. A resolution strategy will need to take into account the materiality and the potential impact of failure of certain functions on the financial system and the broader economy.

2.44 The guidance covers the functions and services provided by banks, but does not cover those provided by insurance firms²⁵ or FMIs, though some elements may be relevant to these sectors. Even within banks, the guidance focuses primarily on G-SIBs, however many aspects will also be relevant for D-SIBs.

2.45 The guidance document proposes a two-part definition of “critical”, based on a distinction between “critical functions” and “critical shared services”. It also provides an indicative list of functions that could exhibit some degree of criticality. Critical functions are activities performed for third parties, where failure would lead to disruption of services vital for the functioning of the real economy and for financial stability due to the banking group’s size or market share, external and internal interconnectedness, complexity or cross-border activities - e.g. payments, custody, particular lending and deposit activities in the commercial or real sector, clearing and settling, limited segments of wholesale markets, market making in certain securities and highly concentrated specialty lending sectors. Critical shared services are activities performed within the firm or outsourced to third parties, where failure would lead to the inability to perform critical functions, and therefore to disruption of functions vital for the functioning of the real economy or for financial stability, e.g. information technology, facility management and administrative services.

Guidance on Recovery Triggers and Stress Scenarios

2.46 Recovery plans, essentially developed and maintained by the financial institution’s senior management, identify options to restore financial strength and viability when the particular financial institution comes under severe stress. One of the essential elements of recovery plans is that they should define clear backstops and escalation procedures, identifying the quantitative and qualitative criteria that would trigger implementation of the recovery plan by the banking group. The aim of triggers in recovery planning is to enable firms to restore their financial viability before regulatory authorities see the need to intervene or enforce recovery options. Such triggers are generally in the form of early signals, which require the FIs to notify senior management or the Board, and also the supervisory authority, so as to implement a discretionary response in accordance with the condition. The document thus focuses on two specific aspects of recovery plans, i.e.:

(a) The design and nature of criteria triggering senior management consideration of recovery actions, a firm’s reactions to breached triggers, and engagement of supervisor and resolution authority following breached triggers; and

(b) The severity of the hypothetical stress scenarios and the design of stress scenarios more generally.

2.47 The firms should not rely solely on well-defined quantitative triggers but should also incorporate qualitative criteria for initiating recovery actions. The supervisors should ensure that specific actions should be indicated in the recovery plans when triggers are breached. The document also specifies that the supervisors should ensure that firms use an appropriate number of market-wide stress scenarios and firm-specific stress scenarios to test the robustness of their recovery plans and to assess which options would be effective in a range of stress situations. The scenarios should address capital shortfalls and liquidity pressures and be severe enough to be useful in establishing triggers, estimating impacts of adverse situations, and contemplating responses to remediate adverse situations. The scenarios should be regularly updated and reviewed by the Board. The triggers and stress scenarios should be reviewed by supervisors as part of their general supervisory programme and review of the recovery plan.

FSB Work in Progress

2.48 The FSB jurisdictions are expected to fully implement the Key Attributes in substance and scope, and for all parts of the financial sector that could cause systemic problems, by end-2015. By end-2015, the jurisdictions are also expected to adopt resolution regimes, CMGs or equivalent arrangements, and resolution planning for FMIs that are systemically important in more than one jurisdiction and for systemically important insurers, consistent with the FSB Annexes to the Key Attributes that are in the process of finalization with inputs through a process of dialogue with the IAIS.

2.49 In order to facilitate and support the implementation of the Key Attributes across jurisdictions in a consistent manner, the FSB is in the process of developing wide scale guidance and policy developments in various aspects of recovery and resolution planning for banks as well as standards, as Annexes to the Key Attributes, for insurers and non-bank financial institutions including FMIs.

Application of the Key Attributes to non-bank financial institutions

2.50 The Key Attributes constitute an umbrella standard for resolution regimes for all types of financial institutions. However, not all resolution powers and features set out in the Key Attributes are suitable for all sectors and all circumstances. Different types of financial institutions have distinctive features that need to be taken into consideration while applying the key attributes. Resolution regimes for FMIs need to give specific priority to maintaining continuity of the critical functions that FMIs perform in financial markets and take account of the loss allocation arrangements under the rules of certain FMIs; resolution regimes for insurers need to protect the policyholder interest; and the resolution regimes need to ensure rapid transfer and return of client assets in case of resolution of FI holding the client assets.

2.51 With a view to assisting the jurisdictions and authorities in implementing the Key Attributes for orderly resolution of insurers, FMIs and firms with holding of client and custody assets, the FSB is formulating guidance on Application of Key Attributes of Effective Resolution Regimes to Non-Bank Financial Institutions (NBFIs)²⁶. The guidance on finalisation would be adopted as new Annexes to the Key Attributes. The draft document of the said Annex with respect to insurers, which is presently under consultation stage, is placed as Annex 3.

2.52 In addition, the Committee on Payment and Settlement Systems (CPSS) and the International Organization of Securities Commission (IOSCO) had jointly under the auspices of Bank for International Settlements (BIS) published, in July 2012, a consultative report on the Recovery and Resolution of Financial Market Infrastructures²⁷. The report indicates that the disorderly failure of an FMI can lead to severe systemic disruptions if it causes markets to cease to operate effectively.

2.53 The IAIS, while working on the Paper on Global Systemically Important Insurers: Initial Assessment Methodology²⁸, has given consideration to the fact that the traditional insurance business model is different from banking and does not involve payment systems, credit intermediation or investment banking services. In November 2011, the IAIS published a report entitled Insurance and Financial Stability that describes the IAIS’s view of the relationship between the insurance sector and financial stability, stressing the importance of the longer timeframe that applies to insurance liabilities and the importance of insurance techniques that rest on the pooling of insurance risks, including the notion of insurable interest. Insurance is founded on the law of large numbers, i.e. the aggregation of a large number of idiosyncratic risks ultimately results in a normal curve of distribution. The business model of insurance is based upon the assumption of a large number of ideally uncorrelated risks from policyholders to build up and maintain a well-diversified portfolio. In practice, this means that with an increasing portfolio there is less opportunity for unexpected results and a lower probability of very large losses (in relation to the entire portfolio). The insurance business underwrites risks, and insurance claims become due upon the occurrence of idiosyncratic claim events that relate to mortality, morbidity, property and liability risks.

2.54 In general, insurance underwriting risks are not correlated with the economic business cycle and financial market risks and the magnitude of insurance events is not affected by financial market losses. Insurers are, however, exposed to risks faced by other financial institutions, including credit risk, operational risk, and market risk as well as interest rate and exchange rate risks. Nevertheless, the unique aspects of the insurance business model enabled most insurers to withstand the financial crisis of 2008-09 better than other financial institutions. While the effects of the crisis were certainly felt by the insurance industry, insurers engaged in traditional insurance activities in general were able to absorb the impact and demonstrated no impact on the broader financial system from a systemic risk perspective.

2.55 In contrast, insurance groups and conglomerates that engage in non-traditional and non-insurance (NTNI) activities can be more vulnerable to financial market developments and may therefore be more likely to amplify, or contribute to, systemic risk, than traditional insurers. Examples of NTNI activities include financial guarantee insurance, capital markets activities such as credit default swaps (CDS), transactions for non-hedging purposes, derivatives trading or leveraging assets to enhance investment returns. In addition, the continually evolving marketplace is resulting in products and activities that blur the lines between traditional insurance and bank-type (or investment bank-type) activities.

Information Sharing for Resolution Purposes

2.56 Constraints on timely sharing of non-public information between home and host authorities have emerged as basic challenge in planning, preparation and implementation of recovery and resolution planning as well as resolvability assessments. Differing terms and conditions, including differences in the confidentiality regimes that apply to authorities, as well as hurdles in sharing of supervisory information with non-supervisory authorities, may impede or complicate cross-border information sharing for resolution purposes.

2.57 In order to promote adoption of effective frameworks for information sharing consistent with the Key Attributes, the FSB is in the process of developing a document²⁹ to be incorporated as Annex to the Key Attributes. The document is intended to provide guidance on the standards for information sharing, confidentiality requirements, statutory safeguards, and information sharing within CMGs. It elaborates on the principles for the design of national legal gateways and related confidentiality regimes to facilitate effective sharing of non-public information between domestic and foreign authorities for resolution related purposes.

Workstream on Data Templates

2.58 While the challenge of information sharing between authorities is expected to be addressed by the Guidance Document on Information Sharing for resolution purposes, in order to facilitate effective collection of data in the cross-border context as also to have a common platform for collection of data, standardisation of data templates is considered necessary for collection of information for firms. Accordingly, the ReSG has constituted a workstream with a mandate to prepare data templates for effective data collections for cross-border resolution, both in normal times and in times of stress. The workstream is conducting a survey on firm-specific information needs for resolution planning purposes.

Workstream on non-CMG Hosts

2.59 Generally, for reasons of operational efficiency, practicality, and effective decision-making, the membership of CMGs is limited to those jurisdictions and authorities that are material and significant for a group-wide resolution of the firm. Such a practice could possibly leave out some jurisdictions, where operations of the firm are locally systemic but not material in the context of the overall operations of the financial group, from representation in the CMG. However, the Key Attributes also require cooperation and information sharing between CMGs and authorities in other jurisdictions where the firm has a systemic presence locally but the particular jurisdiction does not participate in the CMG. Towards this end, a Workstream on non-CMG hosts, constituted by the Cross-Border Crisis Management Group to work on cooperation and information sharing between CMGs and non-CMG host authorities, is currently developing a guidance note on processes for identification of non-CMG host jurisdictions; criteria for assessing the systemic nature of G-SIB’s presence in non-CMG host jurisdictions; types of cooperation and information sharing and minimum information to be exchanged between CMGs and non-CMG host authorities.

Gone-concern loss absorbing capacity

2.60 One of the important parameters that is considered essential for development of effective resolution strategies for financial institutions include sufficient loss absorbing capacity and position of loss absorbing capacity in the creditor-hierarchy. In order to take forward the descriptive work on the nature, location and types of loss absorbing capacity and also to assess its effect on the implementation of the resolution strategy, the FSB is preparing, in consultation with the standard-setting bodies, a proposal on the nature, amount and location within a group-structure of G-SIFI loss absorbing capacity in resolution.

Framework for cross-border recognition of resolution actions

2.61 The thematic peer review revealed that the resolution authorities of most jurisdictions do not have powers to give effect to foreign resolution measures in their jurisdiction. The FSB is in the process of developing proposals on methods for enhancing legal certainty in cross-border resolution, particularly with regard to bail-in and temporary stay of close-out rights. The ReSG is establishing a group of legal experts with a mandate to develop a proposal for a framework for the cross-border recognition of resolution actions. The mandate is to explore both statutory (e.g. mutual recognition) and contractual approaches whereby counterparties that may not otherwise be subject to certain resolution measures (e.g. bail-in or temporary stay) agree contractually to be bound by these measures.

Funding and liquidity in resolution

2.62 The CMGs have been facing challenges in practical aspects of funding of firms in resolution in a cross-border context. The ReSG has constituted a workstream with a mandate to develop a paper on the role that the funding and liquidity play in supporting a successful resolution of a SIFI, both before and during the resolution. The purpose is to identify the sources, needs and shortfall of liquidity in resolution, and discuss possible methodologies to measure the funding requirements to bridge the liquidity shortfalls.

Assessment Methodology

2.63 The FSB in association with the International Monetary Fund and the World Bank is currently developing assessment criteria and methodologies to facilitate assessments against the Key Attributes as well as to promote effective and consistent implementation across jurisdictions. The implementation of the Key Attributes will also be subject to assessments under the IMF/ World Bank Financial Sector Assessment Program.

2.64 The purpose of the methodology³⁰ is to guide the assessment of a jurisdiction's compliance with the Key Attributes and also to serve as guidance to jurisdictions that are adopting or amending national resolution regimes to implement the Key Attributes. Once finalised, the methodology will enable the Key Attributes to be included in the FSB's list of key standards for sound financial systems and to be used in country assessments by the IMF and World Bank under the Standards and Codes (S&C) Initiative.

¹ SIFIs are financial institutions whose distress or disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity.

² IMF: Laeven and Valencia (2010), Geneva Reports on the World Economy (2010) jointly published by International Center for Monetary and Banking Studies (ICMB) and Centre International D’Etudes Monetatires Et Bancaires (CIMB).

³ Geneva Reports on the World Economy jointly published by ICMB and CIMB (2010).

⁴ Basel Committee on Banking Supervision (2010), Danielsson and Zoega (2009), and Geneva Reports on the World Economy jointly published by ICMB and CIMB (2010).

⁵ Source: Basel Committee on Banking Supervision (2010).

⁶ FDIC press release dated September 25, 2008

⁷ Dewatripont and Rochet (2009), Basel Committee on Banking Supervision (2010), and Geneva Reports on the World Economy jointly published by ICMB and CIMB (2010).

⁸ Blomberg: Fortis Gets EU11.2 Billion Rescue From Governments. September 28, 2008.

⁹ Van De Woestyne and Van Caloen (2009), Basel Committee on Banking Supervision (2010), and Geneva Reports on the World Economy jointly published by ICMB and CIMB (2010).

¹⁰ Australia (banks, insurers and FMIs), Brazil (banks, securities firms and FMIs), France (banks and investment firms), Germany (banks and FMIs licensed as banks), Indonesia (banks and insurers), Singapore (all FIs), South Africa (all FIs), and EU (legislative proposal covers banks and investment firms, while its consultation covers the need for a recovery and resolution framework for insurers and FMIs).
Source: FSB’s peer review report on thematic review on resolution regimes (2013).

¹¹ Canada, Hong Kong, India, Japan, Mexico, Russia, Saudi Arabia, Switzerland and United Kingdom.

¹² FINMA position paper (2012) on Resolution of global systemically important banks.

¹³ Thematic reviews focus on the implementation and effectiveness, across the FSB membership, of international financial standards developed by standard-setting bodies and policies agreed within the FSB in a particular area important for global financial stability. The objective of peer reviews are to encourage consistent cross-country and cross-sector implementation; to evaluate the extent to which standards and policies have had their intended results, and to identify gaps and weaknesses in reviewed areas and to make recommendations for potential follow-up by FSB members.

¹⁴ See http://www.bis.org/publ/bcbs189_dec2010.pdf.

¹⁵ See http://www.bis.org/publ/bcbs169.pdf.

¹⁶ See http://www.financialstabilityboard.org/publications/r_101111a.pdf.

¹⁷ See http://www.financialstabilityboard.org/publications/r_111104cc.pdf.

¹⁸ See http://www.bis.org/publ/bcbs207.pdf.

¹⁹ See http://www.bis.org/publ/bcbs233.pdf.

²⁰ See http://www.iaisweb.org/G-SIIs-988.

²¹ Examples of NTNI activities include financial guarantee insurance, capital markets activities such as credit default swaps (CDS), transactions for non-hedging purposes, derivatives trading, or leveraging assets to enhance investment returns.

²² See http://www.financialstabilityboard.org/publications/r_130716b.htm.

²³ See http://www.financialstabilityboard.org/publications/r_130716a.htm.

²⁴ See http://www.financialstabilityboard.org/publications/r_130716c.htm.

²⁵ The IAIS has forwarded its views and reasons why resolution in insurance is different from other segments of the financial sector and this is work in progress.

²⁶ FSB has issued a consultative document in August 2013 for inviting comments.
Please see http://www.financialstabilityboard.org/publications/r_130812a.pdf.

²⁷ Document is available at www.bis.org/publ/cpss101.htm.

²⁸ See IAIS paper on Global Systemically Important Insurers: Initial Assessment Methodology (July 18, 2013).

²⁹ FSB has issued a consultative document in August 2013 for inviting comments.
Please see http://www.financialstabilityboard.org/publications/r_130812b.pdf.

³⁰ FSB has issued a consultative document in August 2013 inviting comments.
Please see http://www.financialstabilityboard.org/publications/r_130828.pdf.