The Basel Committee has finalized guidance on how weak banks are to be identified, corrected, and—when that is not possible—resolved. Basel’s standards are based on the FSB’s key attributes for effective resolution and go into depth on specifics not fleshed out by the FSB that are critical to implementing pending policy initiatives such as new total loss absorption capacity (TLAC) buffers. Basel emphasizes the need for early remediation, but is not prescriptive and thus may not prevent supervisory inaction and/or sovereign support for faltering banks. For the first time, global regulators here state that supervisory actions should be aimed at preserving the value of a bank’s assets with minimal disruption to its operations (i.e., maintaining the economic entity), minimizing resolution costs and averting systemic impact by going as far as shuttering the bank.
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