Guidance on Deposit Insurers’ Role in Contingency Planning and System-wide Crisis Preparedness and Management

1 May 2019

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The Core Principles for Effective Deposit Insurance Systems issued by the International Association of Deposit Insurers (IADI) outline the roles and responsibilities of the deposit insurer in contingency planning and crisis preparedness and management (Core Principle 6). Depending on the design of the institutional and regulatory framework in a jurisdiction, the mandates of deposit insurers may differ. However, there are elements of contingency planning and crisis preparedness and management that are applicable to all deposit insurers.

Deposit insurers need to engage in a variety of preparatory activities aimed at identifying and preparing for events that may affect normal functioning. Contingency planning or crisis preparedness exercises enable the testing of the effectiveness of plans to handle extraordinary situations and seek to ensure that the deposit insurer can perform the role according to its mandate in the event of a system-wide crisis.

This Guidance Paper reviews current practices among IADI members and provides a direction for the implementation and strengthening of deposit insurers’ contingency planning and crisis preparedness and management frameworks. It is recognised, however, that such direction cannot be uniform for all deposit insurers, but will need to be tailored according to their mandate and the legal framework in each jurisdiction.

Thematic Peer Review on Bank Resolution Planning

29 April 2019 | PDF full text (1,006 KB)

This report forms part of a series of peer reviews to support timely and consistent implementation of the FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions. The Key Attributes set out the core elements of effective resolution regimes that allow authorities to resolve financial institutions in an orderly manner without taxpayer exposure to loss, while maintaining continuity of their vital economic functions.

The peer review evaluates the implementation by FSB jurisdictions of the resolution planning standard as set out in the Key Attributes and in associated guidance. It focuses on resolution planning for all domestically incorporated banks that could be systemically significant or critical if they fail (‘systemic in failure’).

The peer review finds that bank resolution planning frameworks have been adopted in most FSB jurisdictions, with planning most advanced for global systemically important banks (G-SIBs) and in jurisdictions that are home to them. The range of banks subject to resolution planning varies widely and some of the requirements – for example, the frequency of resolution plan review, data reporting and the content of plans – also tend to vary, particularly for banks other than G-SIBs or domestic systemically important banks (D-SIBs).

Notwithstanding the progress made to date, the review stresses that important work remains to ensure that bank resolution plans can be put fully into effect and sets out recommendations:

  • For FSB jurisdictions to take further steps to adopt and operationalise their resolution planning framework. This includes having powers to require banks to take measures to improve their resolvability; developing playbooks for executing resolution strategies; advancing work on resolution funding and valuation; and enhancing resolution-related cross-border cooperation and information sharing arrangements. Those jurisdictions identified in the report as not having a resolution planning framework should report to the FSB by June 2020 on actions undertaken, or planned, to adopt such a framework.
  • For the FSB to undertake work to support member authorities’ resolution planning for banks other than G-SIBs that could be systemic in failure.
  • For the FSB, working with relevant authorities and other bodies, to promote the sharing of bank resolution planning experiences and practices in enhancing cooperation and information-sharing arrangements, particularly for non-G-SIBs and with non-crisis management group (CMG) host jurisdictions for G-SIBs.

FSB publishes peer review on bank resolution planning

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Ref no: 8/2019

The Financial Stability Board (FSB) published today a Thematic Review on Bank Resolution Planning. This report forms part of a series of peer reviews to support timely and consistent implementation of the FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions. The Key Attributes set out the core elements of effective resolution regimes that allow authorities to resolve financial institutions in an orderly manner without taxpayer exposure to loss, while maintaining continuity of their vital economic functions.

The peer review evaluates the implementation by FSB jurisdictions of the resolution planning standard as set out in the Key Attributes and in associated guidance. It focuses on resolution planning for all domestically incorporated banks that could be systemically significant or critical if they fail (‘systemic in failure’).

The peer review finds that bank resolution planning frameworks have been adopted in most FSB jurisdictions, with planning most advanced for global systemically important banks (G-SIBs) and in jurisdictions that are home to them. The range of banks subject to resolution planning varies widely and some of the requirements – for example, the frequency of resolution plan review, data reporting and the content of plans – also tend to vary, particularly for banks other than G-SIBs or domestic systemically important banks (D-SIBs).

Notwithstanding the progress made to date, the review stresses that important work remains to ensure that bank resolution plans can be put fully into effect and sets out recommendations:

  • For FSB jurisdictions to take further steps to adopt and operationalise their resolution planning framework. This includes having powers to require banks to take measures to improve their resolvability; developing playbooks for executing resolution strategies; advancing work on resolution funding and valuation; and enhancing resolution-related cross-border cooperation and information sharing arrangements. Those jurisdictions identified in the report as not having a resolution planning framework should report to the FSB by June 2020 on actions undertaken, or planned, to adopt such a framework.
  • For the FSB to undertake work to support member authorities’ resolution planning for banks other than G-SIBs that could be systemic in failure.
  • For the FSB, working with relevant authorities and other bodies as appropriate, to promote the sharing of bank resolution planning experiences and practices in enhancing cooperation and information-sharing arrangements, particularly for non-G-SIBs and with non-crisis management group (CMG) host jurisdictions for G-SIBs.

Lesetja Kganyago, Governor of the South African Reserve Bank and Chairman of the FSB’s Standing Committee on Standards Implementation (SCSI) that oversaw the preparation of the peer review, said “Resolution reforms are a critical component of the policy framework for addressing the too-big-to-fail problem. The findings of the peer review provide a good baseline to monitor developments, and its recommendations will maintain the momentum for reform.”

Stefan Gannon, Commissioner of the Resolution Office at the Hong Kong Monetary Authority (HKMA) and Chair of the peer review team, said “Important steps have been taken in recent years by FSB jurisdictions to establish resolution planning frameworks and operationalise resolution strategies. But much work is still needed, both by member authorities and by the FSB to ensure effective implementation of the Key Attributes in this area.”

Notes to editors

The FSB began a regular programme of peer reviews in 2010, consisting of thematic reviews and country reviews. The objectives of thematic reviews are: to encourage consistent cross-country and cross-sector implementation; to evaluate (where possible) 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 (including through the development of new standards) by FSB members. The objectives and guidelines for the conduct of these reviews are set out in the Handbook for Peer Reviews.

The peer review on bank resolution planning is the third thematic peer review on resolution regimes and the fourteenth thematic review conducted by the FSB. The report published today describes the findings of this review, including the key elements of the discussion in the FSB SCSI. The draft report was prepared by a team of experts drawn from FSB member institutions and led by Stefan Gannon, Commissioner of the Resolution Office at the HKMA.

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, Governor and Vice Chairman for Supervision, 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.

FSB Plenary meets in New York

26 April 2019

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Ref no: 7/2019

The FSB Plenary met in New York today to discuss vulnerabilities in the global financial system and progress under its 2019 work programme, including deliverables for the June G20 meetings in Japan.

Current vulnerabilities in the global financial system

The Plenary discussed the financial stability implications of recent developments in global financial markets. Market sentiment has improved since the start of the year and financial conditions have eased, after the sharp decline in the prices of various financial assets during the fourth quarter of 2018. Uncertainties remain elevated, but some immediate concerns have receded, including following the extension to the deadline for the United Kingdom’s withdrawal from the European Union. Financial markets generally functioned well during the period of volatility at the end of 2018. Nonetheless, the FSB recognised that a more severe and protracted stress event could test the resilience of the financial system. The FSB therefore remains vigilant about the loosening seen in lending standards, elevated asset values, and high private and public debt.

The core of the financial system is considerably more resilient than it was a decade ago. Potential vulnerabilities in the financial system persist, however, and in some cases have built up further and policy space is limited. There are questions as to the extent of financial institutions’ exposures to riskier credit instruments, including leveraged loans, directly and through collateralised loan obligations (CLOs). While CLO structures appear to be more robust now than before the global financial crisis, leveraged loan credit quality has deteriorated over the past few years and it remains unclear whether CLO prices are aligned with risk. The FSB is closely monitoring these markets and members will further examine information on the pattern of exposures to these assets in the coming months to deepen its analysis of potential vulnerabilities.

FSB surveillance framework

The Plenary discussed a new initiative to develop an FSB surveillance framework. The assessment of vulnerabilities in the global financial system is a core element of the FSB’s mandate, and the completion of the main post-crisis reforms reinforces the importance of vigilant monitoring. The new framework will support the comprehensive, methodical and disciplined review of potential vulnerabilities, and help the FSB to identify and address new and emerging risks to financial stability.

Market fragmentation

International cooperation and coordinated action by financial authorities have strengthened the global financial system in the aftermath of the global financial crisis. The FSB discussed a draft report that looks at examples of financial activities where supervisory practices and regulatory policies may give rise to market fragmentation and potential trade-offs between the benefits of increased cross-border activity and a need to tailor domestic regulatory frameworks to local conditions and mandates. Examples include the trading and clearing of over-the-counter (OTC) derivatives across borders; banks’ cross-border management of capital and liquidity; and the sharing of data and other information internationally.

The report, which includes a discussion of approaches and mechanisms that may enhance the effectiveness and efficiency of international cooperation, will be published and submitted to the June meeting of G20 Finance Ministers and Central Bank Governors.

Review of the implementation of the TLAC standard

The Plenary discussed a report on the implementation of the total-loss absorbing capacity (TLAC) standard. The TLAC standard was developed as part of the FSB’s work to end the risk of global systemically important banks (G-SIBs) being considered too-big-to-fail. The standard seeks to ensure the availability of appropriate amounts of loss-absorbing capacity at the right locations within a G-SIB’s group structure to provide home and host authorities with confidence that G-SIBs can be resolved in an orderly manner. The report will be published in June.

Evaluating the effects of financial reforms

The Plenary discussed the draft findings of the evaluation of the effects of financial regulatory reforms on the financing of small and medium-sized enterprises. The evaluation is part of a broader examination of the effects of the post-crisis reforms on financial intermediation. The draft report will be delivered to the G20 meetings in Japan and issued for public consultation in June. The final report, incorporating public feedback, will be published in November.

The Plenary also approved the terms of reference for the evaluation of the effects of too-big-to-fail (TBTF) reforms. The evaluation will assess whether the implemented reforms are reducing the systemic and moral hazard risks associated with systemically important banks. It will also examine the broader effects of the reforms to address TBTF for systemically important banks on the overall functioning of the financial system. Stakeholder outreach will be an important aspect of the evaluation, including through an initial call for public feedback on the effects of the TBTF reforms and through workshops to exchange views on this topic. The FSB will publish a draft report for public consultation in June 2020 and will publish the final report, taking into account consultation responses, in late 2020.

Financial innovation

The Plenary discussed the different initiatives under way at standard-setting bodies to address risks from crypto-assets and any possible gaps in this work. The FSB’s work on crypto-assets has focused on two areas: monitoring of the financial stability implications and a directory of crypto-asset regulators. Members took note of the continued rapid evolution of crypto-asset markets and the need for continued monitoring of developments. The FSB will publish an update on the work of the standard-setting bodies and will deliver it to the June meeting of G20 Finance Ministers and Central Bank Governors.

More generally, the FSB is exploring financial stability, regulatory and governance implications of decentralised financial technologies. The FSB will publish its report to the G20 on this subject in June.

Response to and recovery from a cyber incident

Cyber incidents have the potential to pose a threat to the stability of the global financial system. The FSB agreed last October to develop a toolkit of effective practices, which will assist financial institutions, as well as supervisors and other relevant authorities in supporting financial institutions, before, during and after a cyber incident. The Plenary discussed a draft of an initial progress report, which will be published and submitted to the June meeting of G20 Finance Ministers and Central Bank Governors. The toolkit will be subject to public consultation in early 2020.

Unique Product Identifier (UPI) and Legal Entity Identifier (LEI)

Plenary members discussed the designation of an entity/entities that will issue UPI codes and operate the UPI reference data library, following an assessment process launched in July 2018. An announcement concerning the designation will be made shortly.

G20 Leaders at the 2012 Los Cabos Summit endorsed the FSB’s recommendations for the development of a global LEI system and encouraged global adoption of the LEI to support authorities and market participants in identifying and managing financial risks. The Plenary discussed at its meeting today the draft report of its thematic peer review of FSB member authorities’ implementation of the LEI, which will be published in the coming weeks. The report will reaffirm the FSB’s commitment to a broader use of LEIs globally.

Addressing the decline in correspondent banking relationships

The Plenary noted with concern the continued decline in the number of correspondent banking relationships. It discussed a progress report on the implementation of the FSB’s action plan, including international guidance to clarify regulatory expectations, coordination of technical assistance and strengthening tools for due diligence.

The reduction in correspondent banking relationships has had a significant impact on remittance service providers’ ability to access banking services, particularly acute in those developing countries where remittance flows are a key source of funds for households. Plenary members reviewed a draft report to the G20 that follows up on the FSB’s March 2018 recommendations on remittance service providers’ access to banking services.

Notes to editors

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 for Supervision, 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.

Progress on the Transition to Risk-Free Rates

10 April 2019 | PDF full text (76 KB)

Speaking at an FSB roundtable on reform of major interest rate benchmarks in Washington DC, hosted by the Commodity Futures Trading Commission, FSB Chair Randal K. Quarles and Federal Reserve Board Vice-Chairman of Supervision, set out the need for a smooth transition to risk-free rates from LIBOR. 

Other speakers at the event included:

  • Andrew Bailey (CEO, UK Financial Conduct Authority and Co-chair, FSB Official Sector Steering Group)
  • Craig Phillips (Counsellor to the Secretary, U.S. Treasury)
  • J. Christopher Giancarlo (Chairman, U.S. Commodity Futures Trading Commission)
  • Sir David Ramsden (Deputy Governor, Bank of England)
  • Tom Wipf (Chairman of the MRAC Interest Rate Benchmark Reform Subcommittee and Vice Chairman of Institutional Securities, Morgan Stanley)
  • Beth Hammack (Global Treasurer, Goldman Sachs)
  • Tom Deas (Chairman, National Association of Corporate Treasurers)
  • Patrick McCoy (immediate past President, Government Finance Officers Association and Director of Finance, Metropolitan Transit Authority)

FSB Chair’s letter to G20 Finance Ministers and Central Bank Governors: April 2019

9 April 2019 | PDF full text (284 KB)

This letter from FSB Chair Randal K. Quarles to G20 Finance Ministers and Central Bank Governors was sent ahead of their meeting in Washington DC on 11-12 April 2019. The letter addresses four key issues:

  • Addressing new and emerging vulnerabilities in the financial system – the FSB will continue to scan the horizon to identify and assess emerging risks. While the core of the financial system is considerably more resilient than it was a decade ago, potential vulnerabilities in the financial system persist, and in some cases have built up further. Loosening lending standards, elevated asset values, and high corporate and public debt call for particular vigilance.

  • Finalising and operationalising post-crisis reforms – the FSB will work with standard-setting bodies to complete the few remaining reform items. The FSB will continue to support full, timely and consistent implementation of the agreed post-crisis reforms. Work on addressing structural vulnerabilities from asset management activities will continue.

  • Evaluating the effects of the reforms – the FSB is currently examining the effects on the financing of small and medium-sized enterprises, and has just started to evaluate the effects of too-big-to-fail reforms in the banking sector. The FSB, is exploring issues around market fragmentation, supporting the Japanese G20 Presidency’s priority to address this topic.

  • Reinforcing outreach to stakeholders – the FSB remains committed to improve communication and transparency with other external stakeholders, to increase understanding of the FSB’s work and facilitate greater input from a wide array of stakeholders.

FSB Chair writes to G20 Finance Ministers and Central Bank Governors

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Ref no: 6/2019

The Financial Stability Board (FSB) today published a letter from its Chair Randal K. Quarles to G20 Finance Ministers and Central Bank Governors ahead of their meeting in Washington DC this week. The letter provides an update on the FSB’s work and discusses current vulnerabilities in the financial system.

The letter sets a number of key themes:

  • Addressing new and emerging vulnerabilities in the financial system – the FSB will continue to scan the horizon to identify and assess emerging risks. While the core of the financial system is considerably more resilient than it was a decade ago, potential vulnerabilities in the financial system persist, and in some cases have built up further. Loosening lending standards, elevated asset values, and high corporate and public debt call for particular vigilance.

  • Finalising and operationalising post-crisis reforms – the FSB will work with standard-setting bodies to complete the few remaining reform items. The FSB will continue to support full, timely and consistent implementation of the agreed post-crisis reforms. Work on addressing structural vulnerabilities from asset management activities will continue.

  • Evaluating the effects of the reforms – the FSB is currently examining the effects on the financing of small and medium-sized enterprises, and has just started to evaluate the effects of too-big-to-fail reforms in the banking sector. The FSB, is exploring issues around market fragmentation, supporting the Japanese G20 Presidency’s priority to address this topic.

  • Reinforcing outreach to stakeholders – the FSB remains committed to improve communication and transparency with other external stakeholders, to increase understanding of the FSB’s work and facilitate greater input from a wide array of stakeholders.

Notes to editors

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 for Supervision, 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.

Crypto-assets regulators directory

5 April 2019 | PDF full text (532 KB)

This directory provides information on the relevant regulators and other authorities in FSB jurisdictions and international bodies who are dealing with crypto-asset issues, and the aspects covered by them.

The publication of the directory is part of ongoing work by the FSB and standard-setting bodies on crypto-assets.

FSB publishes directory of crypto-assets regulators

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Ref no: 5/2019

The Financial Stability Board (FSB) published today a Crypto-assets regulators directory. The purpose of the directory is to provide information on the relevant regulators and other authorities in FSB jurisdictions and international bodies who are dealing with crypto-asset issues, and the aspects covered by them. The directory will be delivered to the G20 Finance Ministers and Central Bank Governors meeting on 11-12 April 2019.

Notes to editors

The publication of the directory is part of ongoing work by the FSB and standard-setting bodies on crypto-assets. In October 2018 the FSB released a report, Crypto-asset markets: Potential channels for future financial stability implications. The report concluded that crypto-assets do not pose a material risk to global financial stability at this time. However, vigilant monitoring is needed in light of the speed of market developments.

As that report noted, crypto-assets also raise several broader policy issues, such as the need for consumer and investor protection; strong market integrity protocols; anti-money laundering and combating the financing of terrorism (AML/CFT) regulation and supervision, including implementation of international sanctions; regulatory measures to prevent tax evasion; the need to avoid circumvention of capital controls; and concerns relating to the facilitation of illegal securities offerings. These risks are the subject of work at national and international levels.

The FSB undertakes regular monitoring of the financial stability implications of developments in crypto-assets using a framework developed in collaboration with the Committee on Payments and Market Infrastructures. The framework is described in the July 2018 report, Crypto-assets: Report to the G20 on the work of the FSB and standard-setting bodies.

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 for Supervision, 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.