Basel mulls new cross-border regulations on failed banks

MANILA, Philippines - The Basel Committee on Banking Supervision issued for consultation recently the report and recommendations of the cross-border bank resolution group.

Basel Committee chairman Nout Wellink said in a press report 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.”

Wellink is also the president of the Netherlands Bank.

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 counter parties should be strengthened to limit the impact on the market of a bank failure.

The Basel committee on banking supervision provides a forum for regular cooperation on banking supervisory matters. It seeks to promote and strengthen supervisory and risk management practices globally.

The committee comprises representatives from Argentina, Australia, Belgium, Brazil, Canada, China, France, Germany, Hong Kong SAR, India, Indonesia, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, Russia, Saudi Arabia, Singapore, South Africa, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The Committee’s Secretariat is based at the Bank for International Settlements in Basel, Switzerland.