Progress on recovery and resolution planning has resulted from national efforts aimed at preserving domestic financial stability and from the work of international bodies focused on global financial stability. In the US, the Dodd-Frank Act has required systemically important financial institutions to submit annual resolution plans under rules issued by the Federal Reserve (FRB) and the FDIC. Other countries are also beginning to require plans from their largest financial institutions, but progress has been uneven resulting in differing standards that have presented complications for global firms.
The Financial Stability Board (FSB) has been developing global resolution standards, with the blessing of the G20. The FSB took an important step in July by publishing three final guidance papers (Guidance) to assist national regulators and firms in implementing recovery and resolution planning requirements. First released for public consultation last year, the Guidance builds on the FSB’s previous “Key Attributes of Effective Resolution Regimes for Financial Institutions” (Key Attributes), which required home and host authorities to maintain Crisis Management Groups to set recovery and resolution strategies coordinated across jurisdictions for each Global Systemically Important Financial Institution.
Taken together with the Key Attributes, the Guidance now forms an initial global framework for recovery and resolution planning.
This new FSB framework does not have the force of law and is only advisory; however, it indicates a set of standards that individual countries have agreed would be beneficial to preventing any single financial institution from being “Too Big To Fail.” In certain areas, however, the FSB may monitor and report to the G20 whether national measures are adhering to the agreed international framework.
This Financial Services Regulatory Brief places the Guidance in context, explains its importance, and provides our view of its key points.