Systemic Resolution for Global Banks

The FDIC in the United States and the Bank of England (BoE) in the United Kingdom have reached an agreement on how to resolve global systemically-important banks (G-SIBs) and, perhaps, other global systemically-important financial institutions (G-SIFIs) operating in both nations. They intend to do so through a “single point-of-entry” (SPE) resolution protocol detailed in a joint paper, minimizing the potential for home/host-country disputes that, as in the Lehman bankruptcy, posed systemic risk and harmed many customers and market participants. SPE is also designed to reduce and, it is hoped, even eliminate the need for governmental assistance when a G-SIB fails because the bank would in advance have raised a sufficient amount of long-term debt to fund an orderly resolution. The agreement begins to resolve numerous resolution questions for G-SIBs in these markets and, because the majority of U.S. offshore assets are in the U.K., also advances orderly cross-border resolution. However, many key questions remain. These include the degree to which the U.K. will have the legal authority to implement the agreement as stipulated, how non-bank financial companies will in fact be covered, and the treatment of counterparty contractual obligations.     

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