FedFin on Global Regulators at Impasse on Systemic Regulation, Cross-Border Resolution

In advance of the G-20 finance ministerial summit this weekend, the Basel Committee on Banking supervision today announced the results of its most recent meeting, which are analyzed in this report.  Although it stands by its recent hard-fought agreements on capital and liquidity (see Client Reports in these series), the BCBS is apparently at an impasse on several other key initiatives.  Perhaps most important of these for U.S. banks is the ongoing differences over systemic institutions.  The Dodd-Frank Act of course mandates higher prudential and related charges for systemic firms (see FSM Reports SYSTEMIC29 and 34), but global regulators so far have agreed only on a study of possible measures of systemic risk to be conducted early next year.   A study of “core principles” of systemic regulation is also under way, but is unclear if this will lead to any of the surcharges mandated in the U.S.  Another key difference is in cross-border resolution regimes, where the U.S. could find itself in a difficult position if the Dodd-Frank systemic rules (see FSM Report RESOLVE) are not adopted in similar form in other major financial markets.  Although global regulators agree on the need for reform to the use of credit rating agencies and the securitization process, the BCBS differs with the U.S. approach to risk retention as also required in the new law (see FSM Report ABS18).