Cross Border Crisis Resolution - Summary

Burden sharing in case of failure is to be considered more problematic for systemically important financial institutions (SIFIs) which operate on an international basis than for banks that operate predominantly domestically. It was recognised that, countries tend to react by creating citadels in a crisis, when they most needed a more cooperative and collaborative approach. Participants recognised that the issue of resolution was extremely political, particularly given the potential for taxpayers’ money to be at stake. The lack of time to negotiate during a crisis because of market pressures raises both the stakes and the difficulty of working across jurisdictions. Clearly, a mechanism understood in advance of a crisis would be far more satisfactory than trying to resolve problems on a case-by-case basis as they occur, for both market participants and taxpayers.

The model of a financial ‘trilemma’ that was explained suggested it was relatively easy to resolve any two sides of a triangle containing global financial stability, domestic sovereignty and cross-border financial activity, but extremely difficult to solve for all three factors simultaneously.

Three core themes were raised: living wills, convergence in national rules and a ‘concordat’ for crisis management. Absent a global legal system for insolvency and resolution regimes, an extremely unlikely option, other options need to be explored.  The process of creating a living will for an institution, though painful and extremely hard work, has proven to be very illuminating for those institutions who are doing so, in creating a legal, operational and financial mapping of how an institution works. The European Union is working hard to create proposals that will make resolution processes clearer and more comparable among member states.