The Financial Stability Board (FSB) issued a pair of consultation papers on Thursday that propose new guidance designed to help guard against moral hazard by enabling the resolution of banks that would otherwise be considered “too big to fail”.
The list of global systemically important banks (G-SIBs) includes the world’s largest, most interconnected banks that are considered too integral to the global financial system to be allowed to fail. Royal Bank of Canada was recently added to the list.
Read: RBC added to list of global systemically important banks
One consultation paper concerns proposed principles for executing a “bail-in” process, which involves converting liabilities into equity, recapitalizing and reorganizing big banks that run into financial trouble. It proposes a set of principles to help regulators employ G-SIB bail-in strategies.
A second consultation paper sets out proposed guidance on developing a plan for funding the orderly resolution of a G-SIB.
The FSB is seeking comments on the papers by Feb. 2, 2018.