by clicking the arrows at the side of the page, or by using the toolbar.
by clicking anywhere on the page.
by dragging the page around when zoomed in.
by clicking anywhere on the page when zoomed in.
web sites or send emails by clicking on hyperlinks.
Email this page to a friend
Search this issue
Index - jump to page or section
Archive - view past issues
Connexus : Issue 38
in funding markets,” the Basel Committee’s consultation document says. “The rationale for adopting additional policy measures for G-SIBs is based on the cross-border negative externalities created by systemically important banks which current regulatory policies do not fully address.” The Committee says, on current results, 28 global banks would be subject to the G-SIB framework, which is due to be phased in over three years from 1 January 2016. Australia’s big four banks are D-SIBs but have not to date been categorised as G-SIBs. “During the recent financial crisis that started in 2007, the failure or impairment of a number of large, global financial institutions sent shocks through the financial system which, in turn, harmed the real economy,” the Basel Committee’s consultation document says. “Supervisors and other relevant authorities had limited options to prevent problems affecting individual firms from spreading and thereby undermining financial stability. As a consequence, public sector intervention to restore financial stability during the crisis was necessary and conducted on a massive scale. “Both the financial and economic costs of these interventions and the associated increase in moral hazard mean that additional measures need to be put in place to reduce the likelihood and severity of problems that emanate from the failure of global systemically important financial institutions. “The negative externalities associated with institutions that are perceived as not being allowed to fail due to their size, interconnectedness, complexity, lack of substitutability or global scope are well recognised. “In maximising their private benefits, individual financial institutions may rationally choose outcomes that, from a system-wide level, are sub-optimal because they do not take into account these externalities. Moreover, the moral hazard costs associated with implicit guarantees derived from the perceived expectation of government support may amplify risk-taking, reduce market discipline and create competitive distortions, and further increase the probability of distress in the future. As a result, the costs associated with moral hazard add to any direct costs of support that may be borne by taxpayers.” In a media release, the FSB says the consultation documents form part of the broader FSB policy framework for systemically important financial institutions which also includes more intensive and effective supervisory oversight and improvements in financial market infrastructures to reduce contagion risks. “The FSB, in cooperation with the international standard setting bodies, will carry out further work to address global systemically important insurers, domestic systemically important banks, other systemic financial firms and financial market infrastructure,” the FSB says. The FSB and the Basel Committee will consider responses to the consultation documents before finalising recommendations to the G20 Leaders Summit in November 2011. – Luke Lawler is a senior manager, policy and public affairs, Abacus www.abacus.org.au 19 www.abacus.org.au 19 Connexus NEWS “Both the financial and economic costs of these interventions and the associated increase in moral hazard mean that additional measures need to be put in place to reduce the likelihood and severity of problems that emanate from the failure of global systemically important financial institutions.”