FSB Meeting in Basel

Financial Stability Board: Too-big-to-fail reforms are working

Banks have become more resilient since the financial crisis and have stronger loss-absorbing capacity. Also, there are better options for dealing with banks in distress. These are the findings made by the Financial Stability Board (FSB) in a consultation report on the evaluation of too-big-to-fail (TBTF) reforms for systemically important banks. “The reforms are working and have given authorities more options for dealing with banks in distress. However, as we are learning how the new system is working, we are also learning where it can be improved,” said Bundesbank Vice-President Claudia Buch at the event convened to present the consultation report. Ms Buch chairs the FSB working group responsible for the report.

The FSB coordinates at the international level the work of national financial supervisory authorities and international standard-setting bodies in the financial sector. It brings together representatives from central banks, finance ministries, supervisory authorities and international organisations. The FSB’s consultation report evaluates TBTF reforms for systemically important banks. These reforms were endorsed by the G20 in the aftermath of the 2008 financial crisis to make the financial system more resilient and financial crises less likely, lowering the costs to the taxpayer.

Reforms bring net benefits for society

An FSB press release on the current consultation report explains how systemically important banks are now better capitalised with stronger loss-absorbing capacity. Authorities also have more options for dealing with banks in distress.

The FSB furthermore concludes that the reforms bring net benefits for society. The provision of finance to the real economy has not suffered, Ms Buch noted, nor are there any signs of relevant negative side effects.

Still gaps to address

However, some aspects of the new regulatory regime can still be improved upon regarding bank resolvability. Scope also exists for improving reporting and disclosures.

The consultation closes at the end of September 2020. The FSB will publish its final report on the impact of the reforms next year.