More Coordination Needed for G-SIFI Regulation, Says Fed's Fischer

Federal Reserve Vice Chairman Stanley Fischer has called for stronger international coordination for regulating and resolving globally systemically important financial institutions (G-SIFI), while speaking at a conference organized by the Swedish Ministry of Finance.
By Rob Daly(2147487629)
Federal Reserve Vice Chairman Stanley Fischer has called for stronger international coordination for regulating and resolving globally systemically important financial institutions (G-SIFI), while speaking at a conference organized by the Swedish Ministry of Finance.

“Although the Basel Committee on Banking Supervision and the FSB reached impressively rapid agreement on needed changes in regulation and supervision, progress in agreeing on the resolution of G-SIFIs and some other aspects of international coordination has been slow,” he stated. “It will also be important to ensure that coordination among different regulators of the financial system is effective and, in particular, will be effective in the event of a crisis.”

One step that global banking regulators have taken to improve the stability of G-SIFIs has been to develop liquidity regulations designed to improve the funding durability and overall liquidity resiliency of internationally active banks. Such banks will face a risk-based capital surcharged subject to their systemic risk.

“In addition, policymakers still have a good deal to learn about how these various reforms will change financial market structure and functioning, how effective they will be in enhancing stability, and whether there will be unintended consequences,” he added. “Among the most important of the possible unintended consequences is that toughened regulation of banks will move some financial activity out of the banking system and into the shadow banking system.”

The Fed has seen global improvement as financial institutions have increased their minimum Tier 1 capital ratios as well as the establishment and deployment of a capital conversation buffer and a countercyclical capital buffer.

The latter, “enables regulators to raise risk-based capital requirements when necessary, and a minimum international leverage ratio have been set,” Fischer explained.

U.S. regulators have gone a step further and are preparing a proposal that would require systemically important banks to issue so-called bail-inable long-term debt that will let banks recapitalize themselves in a resolution situation without calling on funding by the government.

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