The World Is Flat for Systemic Resolutions

Experts say global response necessary for biggest firms

By Joe Adler



As Congress continues to work on a resolution regime for systemically important institutions, a parallel debate is emerging over whether such cleanups should be global efforts. Several options for cross-border coordination are on the table, and the International Monetary Fund is studying the feasibility of charging a tax on internationally active institutions to help governments recoup resolution costs. Though the issue has only just begun to be discussed, observers say everything from a central international resolution fund to a better cross-country framework — similar to Basel II for capital standards — is possible. What’s becoming clear: countries working in isolation may not be sufficient, especially when it comes to paying for large bank failures. “If all you have are home-country funds, the only way you can do cross-border resolutions is to wall off institutions … and handle them on a nation-by-nation basis,” said Karen Shaw Petrou, the managing partner of Federal Financial Analytics Inc. The global tax idea — similar to the Obama administration’s proposal to tax large U.S. banking companies — has gained momentum in international bodies, including the Group of Seven and Group of 20 nations, which asked the IMF to draft the feasibility report. The report is due in June.