On February 27, 2017, the Systemic Risk Council released a policy statement to the finance ministers, governors, chief financial regulators, and legislative committee leaders of the G20 countries.
In its statement, the SRC expressed its support for maintaining minimal international standards in global financial reform measures. In the wake of unresolved debates at the global level, potential changes to U.S. policy on system stability, and ongoing issues in Europe, the SRC stated a need for prudential supervision to remain a priority and offered specific comments and recommendations to ensure that policymakers stay committed to building a resilient financial system.
Furthermore, the SRC underlined the vital importance of five core pillars of the global reform program: (1) mandating much higher common tangible equity in banking groups to reduce the probability of failure, with individual firms required to carry more equity capital, the greater the social and economic consequences of their failure; (2) requiring banking-type intermediaries to reduce materially their exposure to liquidity risk; (3) empowering regulators to adopt a system-wide view through which they can ensure the resilience of all intermediaries and market activities, whatever their formal type, that are materially relevant to the resilience of the system as a whole; (4) simplifying the network of exposures among intermediaries by mandating that, wherever possible, derivatives transactions be centrally cleared by central counterparties that are required to be extraordinarily resilient; and (5) establishing enhanced regimes for resolving financial intermediaries of any kind, size, or nationality so that, even in the midst of a crisis, essential services can be maintained to households and businesses without taxpayer solvency support—a system of bailing-in bondholders rather than of fiscal bailouts.
In addition, the SRC advised that this is not a moment to relax or to retreat from the global reform program, given the debt overhang and impaired macroeconomic policy capability to cushion any shocks to continued recovery. Rather, this is a time for stability of the financial system to remain a priority.
Read the full letter here: Systemic Risk Council Policy Statement to G20 Leaders