Bank of England Governor Mark Carney is calling on policymakers to help push regulatory reforms in several key areas, particularly efforts to reduce moral hazard in the financial system.
In a letter to G20 ministers and governors, Carney, who is also chairman of the Financial Stability Board, notes that the G20 is on track to mostly complete the core reforms of the global financial system, but that “difficult decisions remain to be taken”.
The letter identifies three specific areas where government support is essential: ending too-big-to-fail policies; transforming shadow banking to more transparent and resilient market-based financing; and, making derivatives markets safer.
In particular, the letter focuses on the challenge of ensuring that systemically important banks can be resolved without taxpayer support. To that end, the FSB notes that it needs support in defining the criteria that bank liabilities should meet to be considered “gone-concern loss-absorbing capacity” (GLAC); the appropriate amount of GLAC that systemically important banks should hold; and, where in the structure of banking groups that GLAC should be held.
Additionally, the approach to resolving cross-border banks needs to be supported by contractual or statutory approaches for cross-border recognition of resolution actions, it says.
The FSB says that it also needs support in strengthening cooperation to resolve cross-border issues, and to avoid domestic measures that fragment the global system.