## Finish the Job on Financial Regulation

_IMF Blog, January 23, 2014_

## Source details

**Canonical URL:** [Finish the Job on Financial Regulation](https://www.imf.org/en/blogs/articles/2014/01/23/finish-the-job-on-financial-regulation)

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## Bibliographic details
- Authors: Jose-Vinals
- Published: January 23, 2014

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### Overview
- Author: José Viñals
- Date: January 23, 2014
- Context: Call for completing the global financial regulatory reform agenda launched five years ago; emphasis on G-20 summit in Brisbane and the role of international standard setters and the IMF.

### Progress in reforms
- “The design of these rules is largely complete, and the focus is now shifting to the nitty-gritty of their implementation by countries.”
- Key achievements cited:
  - Basel III regulations making banks more resilient by requiring higher and better capital and liquidity.
  - Intensified supervision and additional capital requirements for global systemically important banks, on top of Basel III levels.
  - Requirements in key economies (United States, the European Union, and Japan) for systemically important institutions to prepare “living wills” to facilitate resolution and minimize taxpayer involvement.
  - National measures to reduce banks’ size and complexity: Volcker rule (United States), Vickers reform (United Kingdom), and forthcoming European Union regulation based on the Liikanen proposals.
- Notable laggard: accounting standards reform “stuck in low gear for too long.”

### The too-important-to-fail problem
- Central concern: expectation that governments will stand behind systemically important financial institutions, creating an implicit public subsidy that lowers funding costs, encourages excessive risk taking, and can lead to taxpayer-funded bailouts.
- Quoted emphasis: “Too-big-to-fail was a major part of the source of the crisis. And we will not have successfully responded to the crisis if we don’t address that problem successfully.” — Ben Bernanke
- Current gaps:
  - Implicit subsidies to systemically important financial institutions “remain too large.”
  - IMF working on new analysis of implicit subsidies to these institutions to be published in April.

### Focus on bank resolution (especially cross-border)
- Main point: one key unfinished element is bank resolution, particularly across borders; many countries remain ill-equipped for a Lehman Brothers-style bankruptcy with assets and liabilities across jurisdictions.
- Recent progress examples:
  - Agreements on the European Union’s bank recovery and resolution directive and the planned European single resolution mechanism.
  - Continuing implementation of the United States’ Dodd-Frank legislation.
  - Agreement in principle by officials in the United States and the United Kingdom to address cross-border resolution.
- Cross-border exposure note: biggest U.S. banks “hold almost 70 percent of their on and off-balance sheet foreign assets in the United Kingdom.”
- Specific unresolved tasks:
  - Remove legal obstacles to cross-border resolution in areas such as derivatives and national insolvency regimes.
  - Reach agreement on the amount, nature, and location of “bail-in-able” bank debt available to absorb losses.
  - Build an unprecedented level of trust among officials in different countries through strong cooperation and uncompromising implementation of agreed reforms to avoid ring-fencing and balkanization of global finance.

### Policy recommendations and next steps
- Immediate priorities for policymakers:
  - Complete the remaining elements of the G-20 reform agenda, with particular focus on addressing too-important-to-fail through effective resolution regimes.
  - Remove legal obstacles to cross-border resolution (derivatives, insolvency regimes).
  - Agree on rules for “bail-in-able” bank debt (amount, nature, location).
  - Build mutual trust and cooperation among national authorities to support cross-border resolution and prevent ring-fencing.
- Role of international actors:
  - G-20 leaders should continue to support the Financial Stability Board’s work and have the political will to implement agreed reforms.
  - The IMF will contribute resources and expertise, collaborate with the Financial Stability Board and international standard setters, and assist members through surveillance and technical assistance.
- Short-term milestone: the G-20 summit in Brisbane as the focal point to finalize and implement the reform agenda.

*Source: Finish the Job on Financial Regulation — José Viñals, January 23, 2014*

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## References

- [reduce the size and complexity of banks](http://blogs.imf.org/2013/05/14/banking-on-reform-can-volcker-vickers-and-liikanen-resolve-the-too-important-to-fail-conundrum/)

_Source: https://www.imf.org/en/blogs/articles/2014/01/23/finish-the-job-on-financial-regulation_