Open Bank Resolution – an option for banks that are ‘too big to fail’
This concept, which allows failed SIFIs to remain open for business, ensures liquidity and minimises disruption costs within the banking sector. March 20, 2013 | Deepa Chandrasekhar‘Northern Rock- Lessons of the Fall;’ ‘ Lehman Files for Bankruptcy’; ‘Merrill Sold’; ‘AIG Seeks Cash’; ‘US Government bails out Fannie Mae and Freddie Mac’; ‘J.P. Morgan buys Bear Stearns’ - These are some of the headlines that were splashed across publications such as The Economist and Wall Street Journal during certain fateful days in 2007 and 2008. Five years later,regulators, bankers, analysts and the investment community remain fearful of similar collapses. With a view of history having a tendency to repeat itself, regulators have put in place a slew of regulations that are aimed at thwarting another financial fiasco. The recent global financial crisis turned the spotlight on systemically important financial institutions (SIFI), which are defined as a bank, insurance company, or any other financial institution whose failure might trigger a financial crisis. The release of Basel III regulations showed that capital requirements had to be increased across the board, with SIFIs having to incur an additional capital surcharge. The list of 29 global SIFIs released by the Financial Stability Board in 2011 indicated that these are large multinational banks. However, the banking sector in most countries is dominated by a small number of relatively large institutions. A bank failure in any of them is bound to cause an upheaval in their respective local markets as the domino effect cascades into eroding market confidence and a rapid disappearance of access to wholesale funding. In America and Europe, the onus of providing financial support for troubled banks fell on the respective governments. Countries that chose to have their governments guarantee their respective banking system’s liabilities, paid a heavy price in terms of the high level of public debt, spiralling fiscal deficits, and having their sovereign credit ratings lowered by the rating agencies. This in turn resulted in a spike in credit default swap poin... Please login to read the complete article. If you already have an account, you can login now or subscribe/register.
Categories: Basel III, Regulation, Risk and Regulationbasel III,riskregulation,Risk and Regulation, Basel III,Regulation,Risk and Regulation, Keywords:Liquidity, SIFI, Reserve Bank Of New Zealand, Basel Committee Of Banking Supervision, Open Bank Resolution Liquidity, SIFI, Reserve Bank of New Zealand, Basel Committee of Banking Supervision, Open Bank Resolution
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