Evaluation of the effects of too-big-to-fail reforms: consultation report

28 June 2020 | PDF full text (4 MB)

Summary of document history

Summary of document history

This report, for public consultation, provides an evaluation of too-big-to-fail (TBTF) reforms for systemically important banks. These reforms were endorsed by the G20 in the aftermath of the 2008 global financial crisis and have been implemented in FSB jurisdictions over the past decade. The evaluation examines the extent to which the reforms are reducing the systemic and moral hazard risks associated with systemically important banks, as well as their broader effects on the financial system.

The reforms being evaluated include: (i) standards for additional loss absorbency through capital surcharges and total loss-absorbing capacity requirements; (ii) recommendations for enhanced supervision and heightened supervisory expectations; and (iii) policies to put in place effective resolution regimes and resolution planning to improve the resolvability of banks.

In particular, the evaluation found that:

TBTF reforms have made banks more resilient and resolvable.

  • Systemically important banks are better capitalised and have built up significant loss-absorbing capacity. The capital ratios of global systemically important banks have doubled since 2011.

  • Many FSB jurisdictions have introduced comprehensive bank resolution regimes and are carrying out resolution planning. This gives authorities a wide range of options for dealing with banks in stress.

  • Evidence from market prices and credit ratings suggest that these reforms are seen as credible by market participants.

The benefits of the reforms significantly outweigh the costs.

  • Material negative side effects of the reforms have not been observed. Other market participants have stepped into areas where large banks have reduced their activities, while market fragmentation has not increased.

  • On a conservative estimate of the probability and costs of financial crisis, the reforms have produced net benefits to society.

There are still gaps that need to be addressed.

  • Resolution of banks is a complex process, and some obstacles to resolvability remain. The FSB continues its work to make sure these are addressed and to encourage full implementation of the resolution reforms.

  • Supervisors, firms and markets have much better information than before the implementation of the reforms, but reporting and disclosures could still be improved.

Overview of the building blocks of the evaluation of too-big-to-fail reforms

Overview of the building blocks of the evaluation of too-big-to-fail reforms

The evaluation, which was conducted before the onset of the COVID-19 pandemic, draws on a broad range of information sources and is based on numerous empirical analyses and extensive stakeholder feedback.

The FSB has also published a technical appendix to the evaluation, which provides the detailed empirical evidence for the conclusions reached. Estimates of the social costs and benefits of the TBTF reforms and a Resolution Reform Index were also published.

Responses to the public consultation should be sent to [email protected] by 30 September 2020 with “TBTF consultation” in the subject line. All responses will be published on the FSB website unless respondents request otherwise.

FSB evaluation finds too-big-to-fail reforms made banks more resilient and resolvable, but gaps need to be addressed

Press enquiries:
+41 61 280 8138
[email protected]
Ref no: 19/2020

The Financial Stability Board (FSB) today published for public consultation an evaluation of too-big-to-fail (TBTF) reforms for systemically important banks. The TBTF reforms were endorsed by the G20 in the aftermath of the 2008 global financial crisis and have been implemented in FSB jurisdictions over the past decade. The evaluation examines the extent to which the reforms are reducing the systemic and moral hazard risks associated with systemically important banks, as well as their broader effects on the financial system.

Claudia M. Buch, Vice-President of the Deutsche Bundesbank and chair of the group that produced the report, said: “The too-big-to-fail reforms have made banks more resilient and have given authorities more options for dealing with shocks. And as we are learning how the new system is working, we are also learning where it can still be improved.”

The key findings of the evaluation are that:

TBTF reforms have made banks more resilient and resolvable.

  • Systemically important banks are better capitalised and have built up significant loss-absorbing capacity. The capital ratios of global systemically important banks have doubled since 2011.

  • Many FSB jurisdictions have introduced comprehensive bank resolution regimes and are carrying out resolution planning. This gives authorities a wide range of options for dealing with banks in stress.

  • Evidence from market prices and credit ratings suggest that these reforms are seen as credible by market participants.

The benefits of the reforms significantly outweigh the costs.

  • Material negative side effects of the reforms have not been observed. Other market participants have stepped into areas where large banks have reduced their activities, while market fragmentation has not increased.

  • On a conservative estimate of the probability and costs of financial crisis, the reforms have produced net benefits to society.

There are still gaps that need to be addressed.

  • Resolution of banks is a complex process, and some obstacles to resolvability remain. The FSB continues its work to make sure these are addressed and to encourage full implementation of the resolution reforms.

  • Supervisors, firms and markets have much better information than before the implementation of the reforms, but reporting and disclosures could still be improved.

Responses to the public consultation are invited by 30 September 2020.

Notes to editors

The TBTF reforms being evaluated have three components: (i) standards for additional loss absorbency through capital surcharges and total loss-absorbing capacity requirements; (ii) recommendations for enhanced supervision and heightened supervisory expectations; and (iii) policies to put in place effective resolution regimes and resolution planning to improve the resolvability of banks.

The evaluation, which was conducted before the onset of the COVID-19 pandemic, draws on a broad range of information sources and is based on numerous empirical analyses and extensive stakeholder feedback. The FSB has also published a technical appendix to the evaluation, which provides the detailed empirical evidence for the conclusions reached.

This evaluation, the fourth published by the FSB, was undertaken using the FSB’s framework for the post-implementation evaluation of the effects of the G20 financial regulatory reforms. The next FSB evaluation will be on the effects of money market fund reforms; more information on the timeline and scope of this evaluation will be available in due course.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts. The FSB also conducts outreach with approximately 70 other jurisdictions through its six Regional Consultative Groups.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President, De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

COVID-19, the Financial Stability Board and the G20 Financial Reform Agenda

25 June 2020 | PDF full text (397 KB)

Speaking on a Peterson Institute virtual panel, Dietrich Domanski set out the importance of internationally coordinated action to support a well-functioning, resilient financial system and open markets during the COVID-19 pandemic. He noted that the global financial system is more resilient and better placed to sustain financing to the real economy as a result of the G20 regulatory reforms in the aftermath of the 2008 global financial crisis.

FSB Americas group discusses financial vulnerabilities and the impact of COVID-19

5 June 2020

Press enquiries:
+41 61 280 8138
[email protected]
Ref no: 18/2020

The Financial Stability Board (FSB) Regional Consultative Group (RCG) for the Americas held a conference call today to discuss global and regional macroeconomic and financial market developments and their potential impact on economies in the Americas.

Members exchanged views on the latest financial stability implications of COVID-19. They considered the effectiveness of the wide range of policy measures authorities have taken to sustain the supply of credit to the real economy, to support financial intermediation, and to preserve the functioning and resilience of the individual and global financial systems.

The group also received an update on the FSB’s work programme, which has been re-prioritised to focus on responding to the impact of COVID-19 on the financial system. Members welcomed the FSB’s policy work on enhancing global payment systems and discussed payments issues in the Americas. The group received an update on the FSB’s work on benchmark rates transition and supported the FSB’s initiative to remove remaining dependencies on LIBOR by the end of 2021.

In light of a forthcoming monitoring report to be published later this month by the RCG, members discussed trends and developments in non-bank financial intermediation (NBFI) in the Americas. The monitoring report will be the fifth in a series of reports by the RCG since 2012 that assess the size, structure and recent trends of the NBFI sector in the region, in order to identify potential risks to financial stability at the local jurisdiction level, as well as those arising from potential cross-border linkages.

Notes to editors

The FSB RCG for the Americas is co-chaired by Alejandro Díaz de León-Carrillo, Governor, Bank of Mexico and Cindy Scotland, Managing Director, Cayman Islands Monetary Authority. Membership includes financial authorities from Argentina, Bahamas, Barbados, Bermuda, Bolivia, Brazil, British Virgin Islands, Canada, Cayman Islands, Chile, Colombia, Costa Rica, Guatemala, Honduras, Jamaica, Mexico, Panama, Paraguay, Peru, Trinidad and Tobago, the United States of America and Uruguay.

The FSB has six Regional Consultative Groups, established under the FSB Charter, to bring together financial authorities from FSB member and non-member countries to exchange views on vulnerabilities affecting financial systems and on initiatives to promote financial stability.1 Typically, each Regional Consultative Group meets twice each year.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

  1. The FSB Regional Consultative Groups cover the following regions: Americas, Asia, Commonwealth of Independent States, Europe, Middle East and North Africa, and sub-Saharan Africa. [←]

FSB Europe group discusses financial vulnerabilities and responses to the COVID-19 pandemic

28 May 2020

Press enquiries:
+41 61 280 8138
[email protected]
Ref no: 17/2020

The Financial Stability Board (FSB) Regional Consultative Group (RCG) for Europe held a conference call today to discuss global and regional macroeconomic and financial market developments and their potential impact on European economies.

Members exchanged views on the latest financial stability implications of COVID-19, including the wide range of policy measures authorities have taken to sustain the supply of credit to the real economy, to support financial intermediation, and to preserve the functioning and resilience of the global financial system, as well as their effectiveness. The group highlighted the importance of stress tests concerning banks’ asset quality and lending capacity, and of considering how policy measures might need to evolve over time.

The group also received an update on the FSB’s work programme, which has been re-prioritised to focus on responding to the impact of COVID-19 on the financial system. Members welcomed the FSB’s policy work on enhancing global payment systems, LIBOR transition and other areas to promote a strong global financial system that supports the real economy.

Notes to editors

The RCG Europe is co-chaired by Katharine Braddick, Director General, Financial Services at the UK Treasury and Henry Ohlsson, Deputy Governor, Sveriges Riksbank. The membership of the FSB Regional Consultative Group for Europe includes financial authorities from Austria, Belgium, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Luxembourg, Netherlands, Norway, Poland, Portugal, Romania, Spain, Sweden, Switzerland, Ukraine, United Kingdom and the Group of International Finance Centre Supervisors. The European Commission, the European Central Bank, the ECB Banking Supervision, and European Banking Authority also attended the meeting.

The FSB has six Regional Consultative Groups, established under the FSB Charter, to bring together financial authorities from FSB member and non-member countries to exchange views on vulnerabilities affecting financial systems and on initiatives to promote financial stability.1 Typically, each Regional Consultative Group meets twice each year.

The FSB coordinates at the international level the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability. It brings together national authorities responsible for financial stability in 24 countries and jurisdictions, international financial institutions, sector-specific international groupings of regulators and supervisors, and committees of central bank experts.

The FSB is chaired by Randal K. Quarles, Vice Chairman, US Federal Reserve; its Vice Chair is Klaas Knot, President of De Nederlandsche Bank. The FSB Secretariat is located in Basel, Switzerland, and hosted by the Bank for International Settlements.

  1. The FSB Regional Consultative Groups cover the following regions: Americas, Asia, Commonwealth of Independent States, Europe, Middle East and North Africa, and sub-Saharan Africa. [←]

Financial policymakers discuss responses to COVID-19 with the private sector

26 May 2020

Ref no: 16/2020

Financial policymakers and international standard setters today met virtually with private sector executives to discuss international policy responses to COVID-19. Organised by the FSB’s Standing Committee on Supervisory and Regulatory Cooperation (SRC), in cooperation with Basel Committee on Banking Supervision (BCBS), the Committee on Payments and Market Infrastructures (CPMI), the International Association of Insurance Supervisors (IAIS) and the International Organization of Securities Commissions (IOSCO), the meeting brought together senior representatives from central banks, regulatory authorities and finance ministries as well as about 30 international banks, insurance firms, asset managers, market infrastructures and credit rating agencies. The meeting was chaired by Himino Ryozo, Chair of the SRC and Vice Minister for International Affairs, Japan Financial Services Agency.

The meeting explored the effectiveness of prudential and other financial policy measures taken to date, including experiences with their implementation. Participants also discussed policy issues going forward, notably how financial institutions can better cope with the challenges resulting from rising solvency risks, and exchanged views on potential areas that may warrant further policy coordination.

After the call, Himino Ryozo said: “The global financial system entered the crisis with much enhanced resilience and, with central bank intervention, the liquidity stress in March was largely contained. But the world still faces an unprecedented level of uncertainties. Participants discussed issues which may arise in different phases of the crisis under a range of scenarios. Insights gained today will help the private and official sectors act to ensure financing to the economy, financial stability, and eventually, a strong recovery.”

The discussion at the meeting will help inform ongoing work in the FSB, BCBS, CPMI, IAIS, and IOSCO, and serve as input into the FSB’s report on COVID-19 policy responses to the July G20 meeting.

Notes to editors

Opening remarks by Himino Ryozo are available on the FSB website.

Press enquiries: BIS (BCBS/CPMI): +41 61 280 8188, [email protected] | FSB: +41 61 280 8138, [email protected] | IAIS: +41 61 280 8602 [email protected] | IOSCO: + 34 91 787 0419, [email protected]

FSB compensation workshop 2019: Key takeaways

8 May 2020 | PDF full text (256 KB)

This note provides key takeways from a November 2019 workshop with banks, insurance and asset management firms, trade associations and academia on the implementation of compensation reforms. As part of its work to monitor implementation of its Principles for Sound Compensation Practices and their Implementation Standards, the FSB engages regularly with firms across financial sectors to assess the extent to which the standards have been effectively implemented. This workshop focused on: 

  1. Assessing the effectiveness of compensation policies – the discussion considered the steps firms are taking to assess the effectiveness of compensation policies and practices they have established and implemented.

  2. Use of data by firms as part of compensation practices – participants considered how firms use data to implement compensation policies and practices.

  3. Regulatory and legal issues – the discussion focused on the extent to which legal barriers and conflicts between elements of the Principles and Standards and regulatory frameworks exist, and possible steps to address these.

  4. Developments on compensation and risk alignment research – participants discussed academic research and empirical evidence on the effectiveness of compensation and risk alignment.

The takeaways from the workshop are an input into the FSB’s ongoing work to assess effective compensation practices.