Ensuring bank resolvability remains the most efficient way to tackle the problem of the implicit ‘too big to fail’ subsidy for big banks and to avoid a bail-out by the taxpayer.1 The lessons from the 2023 bank failures reinforced the need to maintain momentum and advance the work on bank resolvability and to avoid complacency.2 That experience underscored that any financial institution that could be systemically significant or critical if it fails should be subject to a resolution regime that has the attributes set out in the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions (Key Attributes).3 The FSB’s work on bank resolution until now has primarily focused on global systemically important banks (G-SIBs). Significant progress has been made to enhance their resolvability since the adoption of the FSB’s Key Attributes. However, existing FSB guidance on resolution planning and resolution execution may also be relevant for other banks that may be systemically significant or critical if they fail (“banks systemic in failure”). The failure of such banks could also have severe consequences for the financial system or the broader economy, and authorities and such banks should be prepared for resolution. Previous FSB evaluations,4 peer reviews,5 and technical work undertaken by the FSB6 suggest further work is needed on operationalising resolution planning for these banks. The current statement aims to clarify the importance of resolution preparedness for these banks, recognising that the principles outlined are already established for G-SIBs.
Following the March 2023 bank failures,7 the FSB held a workshop on banks systemic in failure. This statement is informed by discussions at that workshop and other ongoing work. Below are some considerations to inform jurisdictions’ regulatory and policy frameworks for the resolution preparedness of banks systemic in failure. Besides its work on G-SIBs, the FSB will continue to consider banks systemic in failure in its future work on bank resolution planning topics.
Authorities should assess which banks may be systemically significant or critical if they fail
Resolution authorities, in coordination with other relevant authorities, should assess which banks may be systemically significant or critical if they fail. Authorities should ensure they have sufficient information to make this assessment in normal times and in a crisis. This also includes banks that were not explicitly designated as systemically significant or critical prior to their failure.
Authorities and banks systemic in failure should be prepared for resolution
Authorities should have the appropriate resources, tools, and powers to, if needed, resolve banks systemic in failure. Authorities’ preparedness includes having an up-to-date assessment of the options available to conduct such resolution, and assurance that such options can be implemented quickly and effectively. Banks systemic in failure should ensure they are resolvable in a way that protects their critical functions without severe systemic disruption and avoids the use of taxpayers’ money.
Authorities should consider the need for loss-absorbing capacity
Loss-absorbing capacity (LAC) on the balance sheet of a bank enhances authorities’ ability to resolve the bank without severe systemic disruptions and without the use of taxpayers’ money. It also provides for an additional layer of loss-absorption that may prevent negative systemic effects and uninsured depositors from taking losses, which may forestall or reduce deposit runs.
At the same time, banks and banking systems in different jurisdictions have different characteristics. For this reason, jurisdictions need to consider how to best implement the concept of LAC for banks established in their jurisdictions. Some TLAC Principles for G-SIBs are relevant also for other banks systemic in failure. A number of FSB jurisdictions have already adopted external LAC requirements for banks, beyond G-SIBs, that could be systemically significant or critical if they fail, where authorities set the amount, quantity and implementation timeline on a case-by-case basis. Such LAC requirements are for instance applied to all banks (EU, Hong Kong, UK), to D-SIBs (Canada, Mexico, Switzerland), or to a subset of D-SIBs (Japan).8
The full statement, including additional background information is in the PDF attached above.
- FSB (2023a), 2023 Bank Failures: Preliminary lessons learnt for resolution, October. ↩︎
- FSB (2023b), 2023 Resolution Report: ‘Applying Lessons Learnt’, December. ↩︎
- FSB (2024), Key Attributes of Effective Resolution Regimes for Financial Institutions (revised version 2024), April. The Key Attributes were adopted by the FSB Plenary in October 2011 and endorsed by the G20 Heads of State and Government as “a new international standard for resolution regimes” at the Cannes Summit in November 2011. ↩︎
- FSB (2021), Evaluation of the effects of too-big-to-fail reforms: Final Report, March. ↩︎
- FSB (2019), Thematic Peer Review on Bank Resolution Planning, April. ↩︎
- FSB (2022), 2022 Resolution report: Completing the agenda and sustaining progress, December. ↩︎
- FSB (2023a), 2023 Bank Failures: Preliminary lessons learnt for resolution, October. ↩︎
- In the US, the Comptroller of the Currency, the Federal Reserve System, and the Federal Deposit Insurance Corporation requested comment on a proposed rule on Long-Term Debt Requirements for Large Bank Holding Companies, Certain Intermediate Holding Companies of Foreign Banking Organizations, and Large Insured Depository Institutions. ↩︎
