Basel Issues Recommendations to Improve Cross-Border Financial Activities

The Basel Committee on Banking Supervision has issued for consultation the “Report and recommendations of the Cross-border Bank Resolution Group.”

 

Nout Wellink, Chairman of the Basel Committee and President of the Netherlands Bank, notes that "the recommendations seek to promote more orderly resolution of cross-border banks to reduce systemic risk and help address the too-big-to-fail problem."

 

Building on the lessons of the crisis and a series of case studies, the report sets out 10 recommendations to improve the resolution of a failing financial institution that has cross-border activities. The recommendations fall into three categories:

 

• Strengthening national resolution powers and their cross-border implementation. National authorities need to have powers to intervene sufficiently early and to ensure the continuity of critical functions.

 

• Firm-specific contingency planning. Banks, as well as key home and host authorities, should develop practical and credible plans to promote resiliency in periods of severe financial distress and to facilitate a rapid resolution should that be necessary. The plans should ensure access to relevant information in a crisis and assist authorities' evaluation of resolution options. One of the main lessons from the crisis was that the enormous complexity of corporate structure makes resolutions difficult, costly and unpredictable.

 

• Reducing contagion. Risk mitigation through mechanisms such as netting arrangements, collateralisation practices and the use of regulated central counterparties should be strengthened to limit the impact on the market of a bank failure.
 

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