In this report, we review efforts over the weekend to ensure orderly resolution without resort to taxpayer funds. At a meeting on Sunday attended by FedFin managing partner Karen Petrou, Bank of England head Mark Carney described the Brisbane summit as a “watershed” moment for determining if TBTF can indeed be meaningfully addressed on a cross-border basis. Reflecting this make-or-break atmosphere, eighteen of the 29 G-SIBs Saturday formally agreed to abide by new ISDA master contracts governing stays in government resolutions. Their impact is described here, along with an update on several other recent actions. The resolution-stay protocol applies only to the signatory banks, and it is unclear if recalcitrant G-SIBs can be persuaded to join them in the absence of binding law forcing them to do so. Global policy-makers hope that signatories to date will have enough market clout if not to press laggards, then at least significantly to limit systemic risk. They further expect that some major counterparties — Fannie Mae, Freddie Mac, and the FHLBs will be forced to sign on, perhaps in concert with FSOC action leading to comparable standards for broker-dealers and commodity traders, if not also for insurance companies. In the absence of a mandate, asset managers and other major counterparties remain deeply reluctant to agree to resolution stays.
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