International Association for the Study of Insurance Economics Études et Dossiers Extract from Études et Dossiers No. 360 26 th PROGRES International Seminar Global regulatory and supervisory repair: aligning national interests and international necessities 15-16 April 2010 Glion sur Montreux, Switzerland This document is free to download from The Geneva Association website, May 2010 Working Paper Series of The Geneva Association Association Internationale pour l'etude de l'economie de l'assurance The Geneva Association - General Secretariat - 53, route de Malagnou - CH-1208 Geneva Tel.: +41-22-707 66 00 - Fax: +41-22-736 75 36 - secretariat@genevaassociation.org -
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New Developments in Banking Regulation and Implications for the Insurance Industry Nadège Jassaud 1,5 trillion USD of writedowns; an unprecedent use of crisis management tools Banks 86 % in the banking sector Insurance Cies Bloomberg, March 2010, WDCI s sample 13-1
The cost of the crisis Impact on Central Banks balance sheet 2 500 Federal Reserve 2 000 1 500 1 000 500 Impact on Sovereigns funding costs 0 01/08 03/08 05/08 07/08 09/08 11/08 01/09 03/09 05/09 07/09 09/09 11/09 SOMA Repos Term Auction Facility Commercial Paper Funding Facility Other Loans (Primary Credit, AIG, Bear Stearns, ABCP) Swap lines Mortgage Backed Securities Federal agency debt securities Treasuries Term Asset-Backed Securities Loan Facility Total Assets Cost in GdP s terms BoE, Mervyn King: «global banks are global in life but national in death Crisis Management: main issues Contribution to crisis prevention A levy to enhance risk management and internalise systemic risk Requirement for contingency planning and living wills Framework for solvent asset transferts Contribution to crisis resolution Mechanisms of loss absorptions: shareholders dilutions and unsecured bond holders (contingent capital) Mechanisms to finance cross border resolutions: Ex post funding? Ex ante funding? Links with DGS Single resolution authority 13-2
Crisis Management: a G 20 commitment G20/FSB London April 2009 Immediate implementation of the FSF principles for cross border crisis management Establish colleges forallmajorcross border financial institutions Pittsburgh September 2009 Develop internationally consistent firm contingency and resolution plan Establish crisis management groups for all the major cross border groups BASEL/BCBS Cross border Bank Resolution Group Report March 2009 Group structures complexity: if assessed as an obstacle to an orderly and costeffective resolution, considering regulatory incentives to encourage simplification of the structures. EUROPE Deposit Guarantee Scheme (DGS) First modification: Oct 2008 Directive expected to be reviewed by the Summer 2010 Global framework for crossborder crisis management in the banking sector Communication; Oct 2009 Legislative proposal 2011 EU leaders, declaration post Greece: The G20 should mandate a concerted multilateral effort to address obstacles to effective crossborder crisis management and financial firm resolution, including exploring the idea of common funding pools. FSB work - Contingency planning Items for discussion Are firms assumptions underlying plans realistic? Are the assumptions by national authorities based on a correct understanding of domestic laws? Can relevant lessons be drawn from earlier crisis? What needs to be done to address shortcomings in plans? What actions to be taken to overcome impediments to effective cross border resolution? Is access to all relevant information adequate?. What measures to improve the quality of the information and facilitate access to authorities? 13-3
EU declinaison Deposit Guarantee Schemes October 2008, changes to the EU directive: Level of coverage for deposits: to at least 50,000 (coverage 80%) and by the end of 2010 to at least 100,000 (coverage 90%). Co insurance (where the depositor bears part of the losses, +/ 10%) was abandonned A legislative proposal from the Commission expected by summer 2010, impact assessment currently being finalised, to decideon: scope of coverage shortening of the payout delay (to one week), DGS financing EU declinaison crisis management of cross border groups : an holistic approach Communication on effective and efficient framework for cross-border crisis management in the banking sector October 2009 13-4
Domestic initiatives- tax levy and resolution funds Germany: Cabinet approved a levy (1,2 bn EUR annually on banks) to fund a resolution authority that would use the money to shut future troubled systemic banks. Sweden is setting up a similar system. France: Wants the fee to cover bailouts assessed after a crisis occurs. U.S: Congress is moving toward a levy to build a fund before a crisis (Dodd s proposal: 50 bnusd fund). The Obamaadministration favorsthe post crisis option. U.K.: Gordon Brown has championed a global levy, including one in which revenue would be used to help pay down deficits, but only if there is international consensus. Canada: pressing G 20 to stiffen leverage requirements rather than impose a tax. IMF: a proposal on a bank tax to pay in advance. Extract Wall Street Journal, 4 April 2010 Annex/ EU Commission initiatives 13-5