30 September 2020

Hon. Randal Quarles
Chair
Financial Stability Board
Bank for International Settlements
CH-4002 Basel
Switzerland
By email: [email protected]

Re: Evaluation of the Effects of Too-Big-to-Fail Reforms Consultation Paper

Dear Chairman:

The Global Financial Markets Association (GFMA) welcomes the opportunity to comment on the Financial Stability Board’s (FSB) Evaluation of the effects of too-big-to-fail (TBTF) reforms. We commend the FSB for its work in putting together a comprehensive and broad-ranging consultative paper. We agree with the paper’s overall findings that the TBTF reforms have been largely successful, reducing both systemic risk and the need for direct government support to institutions during periods of stress. It is clear both from the paper’s findings and the initial phase of the COVID-19 event that systemically important banks (SIBs), particularly global systemically important banks (GSIBs), are now significantly more resilient than they were prior to the last financial crisis. This may be attributable to, among other things, to significantly enhanced capital and liquidity requirements ; the issuance of bailinable debt that comprises part of the Total Loss Absorbing Capacity (TLAC) requirements, which clarifies the parties that will absorb losses in a crisis; the development of credible recovery and resolution plans; significantly improved risk management systems and governance structures; and reduced organizational and business model complexity to support resolution strategies.

While we concur with the main direction of the paper, we believe that some achievements in addressing the problem of TBTF have been overlooked. There has been a manifold upgrading of the capital and liquidity resources required for large banks and a fundamental redesign of bank structure and statutory rules to address the issue of TBTF, supported by TLAC funding in the USD trillions. While it is challenging to conduct a comparative analysis of regulatory action that has advanced at different speeds in individual jurisdictions, we do think that the paper could have leveraged additional, publicly observable market data to support its conclusions. We also believe that supervisory assessments and supervisory data would have been helpful in informing the FSB’s deliberations, although we understand that there are limitations on how much of that data the Working Group had access to.