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Addressing the risks posed by systemically important banks

The end of too big to fail?



In the aftermath of the financial crisis, the thorny issue of firms perceived as too big, complex and interconnected to fail was placed at the top of the regulatory reform agenda. The development of policy measures to address the risks posed by systemically important banks (SIBs) has come a long way since then, but there is still a long way to go.

2012 saw significant developments in SIB regulation and supervision. Progress was made in several key areas: drafting recovery and resolution plans; and advancing the work on capital, supervision, data, and restructuring the banking sector.

Furthermore there is no sign of a slowdown in 2013. In a recent paper, the European Banking Authority has recommended that 39 major European cross-border banking groups meet recovery and resolution plans by end-2013.

Key findings

In this paper, we navigate the vast and confusing world of SIB regulation, taking stock of the progress made to date to address the risks posed by SIBs.

We identify four key impact areas of regulation aimed at SIBs: increased funding costs; changes to operational structure and firm-wide strategy; increasing demands on data; and liquidity issues.

We conclude by asking whether the current and proposed regulatory requirements mark the end of ‘too big to fail’.

The focus is on European SIBs; however, the paper is set within the international context.

Please note, the paper’s content page is hyperlinked to allow readers with a particular interest in any of the sub-topics to navigate directly to the relevant pages.

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