The Financial Stability Board (FSB) today published two guidance documents to assist authorities in implementing a resolution regime for global systemically important banks (G-SIBs) in support of policy frameworks to end “too-big-to-fail”. Together with the final guidance the FSB published feedback notes setting out how responses to the November public consultations have been incorporated into the final guidance.
Principles on Bail-in Execution
Bail-in within resolution is at the core of resolution strategies of G-SIBs. It helps achieve a creditor-financed recapitalization by way of a write-down and conversion of liabilities into equity that minimizes impacts on financial stability, ensures the continuity of critical functions, and avoids exposing taxpayers to loss.
The guidance sets out principles to assist authorities as they make bail-in resolution strategies operational. The principles cover:
- disclosures on the instruments and liabilities within the scope of bail-in;
- valuations to inform and support the application of bail-in;
- processes to suspend or cancel the listing of securities, to notify creditors, and to deliver new securities or tradeable certificates following entry into resolution;
- securities law and securities exchange requirements during the bail-in;
- processes for transferring governance and control rights to a new board and management for the firm emerging from resolution; and
- communications to creditors and the market at large.
Funding Strategy Elements of an Implementable Resolution Plan
This second guidance document covers the development of a resolution funding plan for G-SIBs:
- firms’ capabilities to support monitoring, reporting and estimating funding needs in resolution and executing the funding strategy;
- the development of resolution funding plans by authorities;
- the reliance on firm assets and private funding as preferred sources of funding in resolution;
- access to temporary public sector backstop funding mechanisms and ordinary central bank facilities; and
- information sharing and coordination between authorities.