FedFin Assessment:  GSIB Rules Set For Post-CS Rewrite

In this report, we assess the implications of recent events on two assumptions underlying current U.S. and global policy affecting GSIBs and those considered domestic SIBs:  first, all are likely to be well insulated from illiquidity and/or insolvency and, when this is not the case, then orderly resolution without taxpayer bailout can be readily deployed.  Credit Suisse’s failure and subsequent, subsidized acquisition is just one of the “Minsky moments” rattling regulators and other policy-makers, with the conclusions drawn from all of them surely to lead to significant reevaluation of each of these assumptions.  To be sure, CS was an outlier in terms of idiosyncratic culture-and-control problems, but the Swiss regulatory and resolution system is considered reasonably robust, thus making the bank’s failure a global policy concern.  The flood of deposits out of regional banks to the largest U.S. banks also further concentrates the sector, a result the Fed and Department of Justice will view with alarm even though they recognize that recent events are not the fault of the largest banking organizations.  In this report, we assess implications for U.S. merger policy, OLA, TLAC, resolution planning, and other standards.  See our Client Report RESOLVE49 for a discussion of capital and liquidity standards, Client Report DEPOSITINSURANCE118 for revisions to FDIC thresholds, and Client Report LIQUIDITY33 for run-specific policy actions.