{
  "title": "More Work is Needed to Make Big Banks Resolvable",
  "publication": "IMF Blog, March 18, 2024",
  "sourceUrl": "https://www.imf.org/en/blogs/articles/2024/03/18/more-work-is-needed-to-make-big-banks-resolvable",
  "canonical": "https://www.imf.org/en/blogs/articles/2024/03/18/more-work-is-needed-to-make-big-banks-resolvable",
  "overlayPath": "/en/blogs/articles/2024/03/18/more-work-is-needed-to-make-big-banks-resolvable/index.md",
  "summary": "Last year's turmoil showed that further progress is required in a number of areas to ensure banks aren’t too big to fail.",
  "sections": [
    {
      "heading": "Overview of recent failures and context",
      "content": "- Almost a year ago, Credit Suisse, a globally systemic bank with $540 billion in assets and the second-largest Swiss lender, founded in 1856, failed and was sold to UBS.\n- In the United States, Silicon Valley Bank, Signature Bank and First Republic Bank failed at around the same time amid Federal Reserve interest rate hikes to contain inflation.\n- With a combined $440 billion of assets, these were the second, third, and fourth biggest bank resolutions since the Federal Deposit Insurance Corporation was created during the Great Depression.\n- The turmoil represented the most significant test since the global financial crisis of ending too-big-to-fail—resolving a systemic bank while preserving financial stability and protecting taxpayers."
    },
    {
      "heading": "Key findings and lessons learned",
      "content": "- Progress made, but further work required:\n  - Authorities’ actions last year successfully avoided deeper financial turmoil, and financial soundness indicators for most institutions signal continued resilience.\n  - Significant losses were shared with the shareholders and some creditors of the failed banks, unlike many failures during the global financial crisis.\n  - Taxpayers were once again on the hook as extensive public support protected more than just the insured depositors of failed banks.\n- Credit Suisse-specific observations:\n  - Amid a massive creditor run, the Credit Suisse acquisition was backed by a government guarantee and liquidity nearly equal to a quarter of Swiss economic output.\n  - While the public support was ultimately recovered, it entailed very significant contingent fiscal risk and created a larger, more systemic bank.\n  - Use of standing resolution powers to transfer ownership of Credit Suisse, after bailing in shareholders and creditors, rather than relying on emergency legislation to effect a merger would have seen Credit Suisse shareholders fully wiped out and potentially less public support extended.\n- U.S. intervention observations:\n  - Authorities invoked an exception allowing protection of all deposits in two of the failed banks, citing systemic concerns.\n  - This significantly increased costs for the deposit insurer which will need to be recouped from the industry over time.\n  - Even very large and sophisticated depositors were protected—not just the insured.\n- Supervisory shortcomings:\n  - Intrusive supervision and early intervention are critical; supervisors in both cases should have acted faster and been more assertive and conclusive.\n  - The ability and will to act remain critical—and can suffer from unclear mandates or inadequate legal powers, resources, and independence as well as powerful financial sector lobbies.\n- Scope of systemic risk:\n  - Even smaller banks can be systemic; supervisory and resolution authorities should ensure sufficient recovery and resolution planning for the sector, including banks that may not be systemic in all circumstances but could be in some.\n  - This was a key recommendation of the IMF’s latest Financial Sector Assessment Program for the US.\n- Resolution flexibility:\n  - Resolution regimes and planning need sufficient flexibility to balance financial stability risks and taxpayer interests.\n  - Government support may still be required in some circumstances—for example, to avoid a systemic financial crisis.\n  - IMF staff recommended the equivalent of a systemic risk exception for the euro area.\n  - Authorities should pursue plan A but retain flexibility to depart from it and combine different resolution tools as necessitated by specific circumstances.\n- Liquidity in resolution:\n  - Liquidity in resolution is crucial because banks typically fail because creditors lose confidence, even before balance sheets reflect potential losses.\n  - Rebuilding capital buffers in resolution may not be sufficient on its own to restore confidence.\n  - Authorities must make further progress on how quickly banks heading into resolution could receive liquidity support—including prepositioning of collateral and testing preparedness—while still protecting central bank balance sheets.\n- Deposit insurance readiness:\n  - Authorities in many countries need to strengthen deposit insurance regimes—as recommended to Switzerland.\n  - New technology like 24/7 payments, mobile banking, and social media have accelerated deposit runs.\n  - Last year’s failures followed rapid deposit withdrawals, and deposit insurers and other authorities should be ready and able to act more quickly than many currently can.\n  - The US banks that failed were outliers—with balance sheets that had grown very rapidly, funded by a high degree of uninsured deposits.\n  - Where wider coverage is being considered, it would need to be adequately funded.\n  - Particularly in countries with deposit insurance that is not backed by a sovereign with deep pockets, policymakers should be careful not to overextend deposit insurance coverage. If not backed by a commensurate rise in deposit insurance funding, depositors could quickly lose confidence."
    },
    {
      "heading": "Policy recommendations and IMF engagement",
      "content": "- Strengthen supervisory frameworks:\n  - Better empower banking supervisors to act early and with authority if needed, addressing unclear mandates, inadequate legal powers, resources, and independence.\n- Ensure comprehensive recovery and resolution planning:\n  - Include banks that could become systemic in some circumstances and build sufficient flexibility into resolution rules and plans.\n- Improve liquidity preparedness in resolution:\n  - Preposition collateral, test preparedness, and clarify how quickly liquidity support can be provided while protecting central bank balance sheets.\n- Reinforce deposit insurance frameworks:\n  - Strengthen funding, speed, and operational readiness of deposit insurance regimes; exercise caution when expanding coverage without commensurate funding.\n- IMF support:\n  - IMF staff are working actively to support efforts in member countries to strengthen their supervision, resolution, liquidity assistance and deposit insurance frameworks including through FSAPs, technical assistance.\n  - IMF staff are contributing to policy formulation at the international level, including a recently announced review of the international deposit insurance standard, and by earlier this year hosting with the Financial Stability Board a workshop for policy makers on the use of transfer powers in resolution.\n\nSource: IMF blog post by Tobias Adrian and Marc Dobler, March 18, 2024.\n\n---\n\n Content in this bundle\n\n- Country Report\n  - Country Report (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Country Report (PDF){rel=\"external\" type=\"application/pdf\"}\n- Executive Summary and Key Recommendations\n  - Executive Summary and Key Recommendations (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Executive Summary and Key Recommendations (PDF){rel=\"external\" type=\"application/pdf\"}\n- United States: Financial System Stability Assessment; IMF Country Report No. 20/242; July 17, 2020\n  - United States: Financial System Stability Assessment; IMF Country Report No. 20/242; July 17, 2020 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - United States: Financial System Stability Assessment; IMF Country Report No. 20/242; July 17, 2020 (PDF){rel=\"external\" type=\"application/pdf\"}\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\n References\n\n- report\n- Financial Sector Assessment Program\n\nSource: https://www.imf.org/en/blogs/articles/2024/03/18/more-work-is-needed-to-make-big-banks-resolvable"
    }
  ],
  "bullets": [
    "[Markdown version](/en/blogs/articles/2024/03/18/more-work-is-needed-to-make-big-banks-resolvable/index.md)",
    "[Structured JSON version](/en/blogs/articles/2024/03/18/more-work-is-needed-to-make-big-banks-resolvable/index.json)",
    "[Bundle manifest](/en/blogs/articles/2024/03/18/more-work-is-needed-to-make-big-banks-resolvable/bundle-manifest.json)",
    "Authors: Tobias Adrian, Marc Dobler",
    "Published: March 18, 2024",
    "Almost a year ago, Credit Suisse, a globally systemic bank with $540 billion in assets and the second-largest Swiss lender, founded in 1856, failed and was sold to UBS.",
    "In the United States, Silicon Valley Bank, Signature Bank and First Republic Bank failed at around the same time amid Federal Reserve interest rate hikes to contain inflation.",
    "With a combined $440 billion of assets, these were the second, third, and fourth biggest bank resolutions since the Federal Deposit Insurance Corporation was created during the Great Depression.",
    "The turmoil represented the most significant test since the global financial crisis of ending too-big-to-fail—resolving a systemic bank while preserving financial stability and protecting taxpayers.",
    "Progress made, but further work required:",
    "Credit Suisse-specific observations:",
    "U.S. intervention observations:",
    "Supervisory shortcomings:",
    "Scope of systemic risk:",
    "Resolution flexibility:",
    "Liquidity in resolution:",
    "Deposit insurance readiness:",
    "Strengthen supervisory frameworks:",
    "Ensure comprehensive recovery and resolution planning:",
    "Improve liquidity preparedness in resolution:",
    "Reinforce deposit insurance frameworks:",
    "IMF support:",
    "**Country Report**",
    "**Executive Summary and Key Recommendations**",
    "**United States: Financial System Stability Assessment; IMF Country Report No. 20/242; July 17, 2020**",
    "**Working Paper**",
    "[report](https://www.imf.org/en/Publications/global-financial-stability-notes/Issues/2024/03/04/The-US-Banking-Sector-since-the-March-2023-Turmoil-Navigating-the-Aftermath-544809)",
    "[Financial Sector Assessment Program](https://www.imf.org/en/About/Factsheets/Sheets/2023/financial-sector-assessment-program-FSAP)"
  ],
  "related": [
    {
      "title": "Country Report",
      "role": "report",
      "sourceUrl": "https://www.imf.org/-/media/files/publications/cr/2018/cr18226.pdf",
      "summary": {
        "path": "/-/media/files/publications/cr/2018/cr18226.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/files/publications/cr/2018/cr18226.pdf",
        "mime": "application/pdf"
      }
    },
    {
      "title": "Executive Summary and Key Recommendations",
      "role": "document",
      "sourceUrl": "https://www.imf.org/-/media/files/publications/cr/2019/1cheea2019003.pdf",
      "summary": {
        "path": "/-/media/files/publications/cr/2019/1cheea2019003.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/files/publications/cr/2019/1cheea2019003.pdf",
        "mime": "application/pdf"
      }
    },
    {
      "title": "United States: Financial System Stability Assessment; IMF Country Report No. 20/242; July 17, 2020",
      "role": "document",
      "sourceUrl": "https://www.imf.org/-/media/files/publications/cr/2020/english/1usaea2020002.pdf",
      "summary": {
        "path": "/-/media/files/publications/cr/2020/english/1usaea2020002.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/files/publications/cr/2020/english/1usaea2020002.pdf",
        "mime": "application/pdf"
      }
    },
    {
      "title": "Working Paper",
      "role": "paper",
      "sourceUrl": "https://www.imf.org/-/media/files/publications/wp/2023/english/wpiea2023181-print-pdf.pdf",
      "summary": {
        "path": "/-/media/files/publications/wp/2023/english/wpiea2023181-print-pdf.pdf.md",
        "mime": "text/markdown"
      },
      "binary": {
        "path": "/-/media/files/publications/wp/2023/english/wpiea2023181-print-pdf.pdf",
        "mime": "application/pdf"
      }
    }
  ],
  "alternates": {
    "markdown": "/en/blogs/articles/2024/03/18/more-work-is-needed-to-make-big-banks-resolvable/index.md",
    "json": "/en/blogs/articles/2024/03/18/more-work-is-needed-to-make-big-banks-resolvable/index.json",
    "bundleManifest": "/en/blogs/articles/2024/03/18/more-work-is-needed-to-make-big-banks-resolvable/bundle-manifest.json"
  },
  "generatedAtUtc": "2026-08-25T21:55:36.420Z"
}