Thursday, May 29, 2014

Mark Carney, FSB Chair and Bank of England Gov., says SIFI Designations Integral to Ending TBTF

With Congressional oversight of SIFI designations increasing, especially the role of the Financial Stability Board, a leading global regulator said that an imperative condition precedent to ending too big to fail is the identification of all systemically important financial firms and subjecting them to higher standards of resilience. Mark Carney, Bank of England Governor and Chair of the Financial Stability Board, added that policy makers and regulators must also develop a range of tools to ensure that, if they do fail, the firms can be resolved without severe disruption to the financial system and without exposing the taxpayer to loss.

In recent remarks, the central banker and FSB chief noted that the G20 leaders have endorsed measures to end too-big-to-fail. In response, the Financial Stability Board has developed methodologies and begun to identify systemically important financial institutions. This is the year to complete that job, emphasized the Chair. Governments must introduce legislative reforms to make all systemically important companies resolvable.

The  FSB is developing proposals, for the G20 summit in Brisbane, on total loss absorbing capacity for financial institutions, so that private creditors stand in front of taxpayers when banks fail. In addition, the FSB is working with industry to change derivative contracts so that all counterparties stay in while the resolution of a failing firm is underway.

It is absolutely imperative and integral to the financial markets for policy makers and regulators to end too big to fail, averred Mr. Carney, adding that the most severe blow to public trust during the financial crisis was the revelation that there were scores of too-big-to-fail institutions operating at the heart of finance. That unjust sharing of risk and reward contributed directly to inequality, he noted,  but, more importantly, it  has had a corrosive effect on the broader social fabric of which finance is part and on which it relies.

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