Asian regulators eye orderly exit mechanism for big banks

MACTAN, Cebu, Philippines – Monetary and fiscal policymakers in the Asian region have cited the need to address the orderly exit of “too big to fail” institutions to minimize the negative impact on their host countries.

Masamichi Kono, vice commissioner at Japan’s Financial Services Agency, said in a briefing Friday night that  the Financial Stability Board (FSB) Regional Consultative Group for Asia (RCGA) raised the importance of having an effective resolution for these globally systemically-important banks (SIBs).

Kono co-chairs the FSB RCGA with Bangko Sentral ng Pilipinas’ Governor Amando M. Tetangco, Jr. The group was in Cebu last week for their sixth meeting since the establishment of FSB in 2009.

“I think there was a common understanding from the last financial crisis and the ongoing global financial issues that there is a need to address the issue of too big to fail institutions or globally SIBs,” Kono said following the conclusion of RCGA meeting.

“Like how when those institutions find themselves in difficulty, we should avoid the use of taxpayers fund to bailout those institutions,” he added.

Kono stressed that while only China and Japan are home to globally SIBs in Asia, almost all of the countries in the region are host to a number of these too big to fail institutions.

“When they have to be resolved, an orderly resolution which does not endanger... the host country is a necessity,” Kono pointed out.

“It’s now being strongly recognized that for globally systemically-important banks, not only the home countries will have to be comfortable with orderly resolution but also everyone that will be affected,” he continued.

The FSB was established to develop and promote effective regulatory, supervisory, and other financial sector policies.

Aside from discussions covering the effective resolution of globally important institutions, the FSB RCGA also touched on how Asia is progressing on implementing global financial standards.

“We have a number of global financial reforms being studied or being implemented right now including Basel III capital requirements, which I think would be one of the more immediate reforms needed,” Tetangco said in the same briefing.

“Across the region, the readiness to comply with global standards is evident. However, we also recognize that countries in the region are in different stages of development,” Tetangco added.

He noted that the RCGA has discussed how Asian economies will be able to comply with various global standards given their different situations.

“We need to find a way to be able to meet the requirements under this global standards... [and] to be able to prioritize the more important reforms as far as jurisdictions are concerned,” Tetangco stressed.

“But in some way, I think we’re moving towards compliance with the different reforms. The progress may not be the same in the different jurisdictions but definitely, there is movement in this regard,” he added.