FSB still to finalise steps to make big banks stronger

*Bail-in debt, CoCo bond measures won’t be set by G20 summit

*Some SIFI regulation to differ country-to-country

*FSB to present to G20 further recommendations on reform

By Rachel Armstrong

SEOUL, Oct 20 (BestGrowthStock) – The Financial Stability Board will
not finalise measures on how to better prepare “too big to fail”
banks to absorb losses until national regulators have agreed how
to resolve their failure, the board’s chairman Mario Draghi said
on Wednesday.

The FSB has been asked by the Group of 20 leading economies
to come up with measures that cut the risk of a “systemically
important” lender getting into trouble. This is likely to include
forcing big banks to issue bail-in debt and contingent capital –
bonds that convert to equity if a bank gets in to trouble.

But Draghi said the FSB will not make any detailed
recommendations until national regulators have decided on the
course of action to take if a big bank under their control fails.

“How can you price these instruments in the market if you
don’t know how the law treats unsecured creditors to start
with?,” Draghi told reporters following a meeting of the FSB in
Seoul.

Finding a solution to the challenge posed by banks considered
“too big too fail” is one of the key remaining regulatory items
on the G20’s agenda.

The FSB said it will present a four-pillared set of
recommendations to the G20 at its November meeting in Seoul, but
this is not expected to include detailed proposals such as as
mandatory capital surcharges.

Instead the FSB will outline broad proposals requiring all
banks judged to be “globally systemically important financial
institutions” to have a living will in place and their national
regulator a resolution regime in the event of their failure.

But other recommendations – such as boosting banks’ loss
absorbing capacity – are likely to suggest a range of options
which national regulators will be able to choose from.

“Parts will differ from country to country,” said Draghi,
adding that this was due to the different nature of big banks.

“Their business models are different, their histories are
different…so some of these recommendations will require
national configuration,” he said.

The FSB will also present recommendations to the G20 on
regulation of over-the-counter derivatives, increasing the
effectiveness of financial supervision, reducing the reliance on
credit rating agencies and accounting convergence.

On derivatives reform, Draghi said the recommendations would
include increasing the proportion of the market that is
standardised, moving the bulk of over-the-counter derivatives to
exchanges and ensuring all trades are reported to central
repositories.
(Editing by Tomasz Janowski)

FSB still to finalise steps to make big banks stronger