The policy framework for SIFIs should combine:
- a resolution framework and other measures to ensure that all financial institutions can be resolved safely, quickly and without destabilising the financial system and exposing the taxpayer to the risk of loss;
- a requirement that SIFIs and initially in particular global SIFIs (G-SIFIs) have higher loss absorbency capacity to reflect the greater risks that these institutions pose to the global financial system;
- more intensive supervisory oversight for financial institutions which may pose systemic risk;
- robust core financial market infrastructures to reduce contagion risk from the failure of individual institutions and
- other supplementary prudential and other requirements as determined by the national authorities.
Additionally, home jurisdictions for G-SIFIs should:
- enable a rigorous co-ordinated assessment of the risks facing the G-SIFIs through international supervisory colleges;
- make international recovery and resolution planning mandatory for G-SIFIs and negotiate institution-specific crisis cooperation agreements within cross-border crisis management groups;
- subject their G-SIFI policy measures to review by the proposed Peer Review Council.
A policy framework for addressing the systemic and moral hazard risks associated with Systemically Important Financial Institutions (SIFIs) whose disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity.
ReplyDeleteIn particular financial institutions that are clearly systemic in a global context (G-SIFIs) should have higher loss-absorbency capacity than the minimum levels agreed in Basel III. These institutions must also be subject to more intensive co-ordinated supervision and resolution planning to reduce the probability and impact of their failure.