The Financial Stability Board (FSB) has recently published a consultation report on the financial resources and tools for central counterparty (CCP) resolution. The report presents the outcome of the FSB’s qualitative analysis of a set of financial resources and tools for resolution: (i) bail-in bonds; (ii) resolution funds; (iii) resolution-specific insurance; (iv) resolution-specific third-party contractual support; (v) resolution cash calls; (vi) statutory or contractual variation margin gains haircutting for resolution; and (vii) equity in a first-loss position. The resources and tools were assessed against the relevant considerations for financial resources set out in the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions (Key Attributes) and accompanying guidance on CCP resolution.
The analysis finds that resolution authorities may benefit from having access to a combination of complementary resources and tools to achieve a successful CCP resolution. This is because resources and tools have different strengths and weaknesses. They are also likely to have different effects on financial stability.
The report sets out a proposal for a toolbox approach as a global standard for CCP financial resources and tools for resolution. In this approach, home resolution authorities for systemically important CCPs should have access to a set of readily available resolution-specific resources and tools to support resolution, in addition to the use of available recovery resources and tools. Jurisdictions should disclose their approach to calibrating one or more of the resolution-specific resources in the resolution toolbox.
The FSB will monitor implementation for CCPs that are systemically important in more than one jurisdiction (SI>1 CCPs) through the FSB’s annual Resolvability Assessment Process and Crisis Management Group monitoring. The findings will be published in the FSB’s annual resolution report.
