One of the things you now have to do if you're a bank with over $50 billion in American assets is to file a resolution plan, or living will, with the authorities - this basically states how you are going to dispose of the company if it becomes insolvent. After passing all the big American banks through an annual set of stress tests, the regulators have turned their attention abroad:
In their review of the resolution plans from BNP Paribas, HSBC Holdings plc, and The Royal Bank of Scotland Group plc, the agencies noted some improvements from the original plans. However, the agencies have jointly identified specific shortcomings with the 2014 resolution plans that will need to be addressed in the 2015 submissions.
It's annoying enough to be told by some foreign regulator that you aren't sufficiently prepared for a disaster, given that you're home regulator is telling you that you are. But it must be especially annoying if you are a state-owned bank, which RBS is, to the tune of 66% of its outstanding shares. That's almost a foreign relations issue. And given that the resolution of international banks like these is one of the most difficult issues facing bank regulators - there has been a failed effort to create a framework going on since Lehman Brothers failed so chaotically - it must be grating to be told to revise the plan:
The agencies will require that the annual plans submitted by these three institutions on or before December 31, 2015, demonstrate that the firms are making significant progress to address all the shortcomings identified in the letters, and are taking actions to improve their resolvability under the U.S. bankruptcy code. These actions include:
- Amending the financial contracts entered into by U.S. affiliates to provide for a stay of certain early termination rights of external counterparties triggered by insolvency proceedings to the extent those rights are not addressed by the International Swaps and Derivatives Association 2014 Resolution Stay Protocol;
- Ensuring the continuity of shared services that support critical operations and core business lines throughout the resolution process; and
- Demonstrating operational capabilities for resolution preparedness, such as the ability to produce reliable information in a timely manner.
Those are actual requirements! The first one anyway. The other two could be goalposts that just get moved further away next time. Anyway, one question in the brave new world of international banking supervision is whether supervision is a tool that home banks are using for competitive advantage against foreign banks. It will be interesting to see whether this sort of charge is leveled at this sort of action.
Administrative Law, Finance, Financial Crisis, Financial Institutions | Bookmark
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