Global Cooperation in Resolution
Of
Systemically Important Financial Institutions
-- Remarks by
Martin J. Gruenberg, Chairman, FDIC,
to the
24th Special Seminar
On
International Banking and Finance
Tokyo, Japan
November 13, 2013
Introduction
It is a pleasure to be here this evening. I want to thank the Japan Financial News
Company for arranging this program and for the invitation from President Mizushima to
address this distinguished audience. This morning, I visited Commissioner Hatanaka
and Vice Commissioner Kono of the Japan Financial Services Agency. Tomorrow I will
visit Governor Kuroda and Deputy Governor Nakaso of the Bank of Japan, and
Governor Tanabe and Deputy Governor Obata of the Deposit Insurance Corporation of
Japan.
These discussions are important because Japan and the United States are home to 11
of the globally active financial companies designated as being systemically important by
the Financial Stability Board (FSB) of the G-20. Japan is the home country for three
global systemically important financial institutions, and the United States is the home
country for eight. These global, systemically important financial institutions – often
referred to as G-SIFIs – are large, complex and highly integrated companies with
significant operations worldwide. The U.S. G-SIFIs have major operations in Japan;
likewise, Japan's G-SIFIs have major operations in the United States. Further, these
institutions are important counterparties to each other. Given the significance of Japan
and the United States in the global operation of these companies, cooperation and
coordination among regulatory authorities in our countries is particularly important both
for the orderly resolution of G-SIFIs and for maintaining financial stability in Japan and
the United States.
I would note that the FDIC was pleased to learn that the Diet in Japan passed the Law
with Regard to Amendment of the Financial Instruments and Exchange Act, Etc. in June
2013. The new legislation, among other things, expands the scope of the existing bank
resolution regime in Japan to cover not only deposit-taking financial institutions but also
insurance companies, securities firms, financial holding companies, and foreign bank
branches. The new legislation also gives the Deposit Insurance Corporation of Japan
operating responsibilities for the orderly resolution of a G-SIFI.
Of
Systemically Important Financial Institutions
-- Remarks by
Martin J. Gruenberg, Chairman, FDIC,
to the
24th Special Seminar
On
International Banking and Finance
Tokyo, Japan
November 13, 2013
Introduction
It is a pleasure to be here this evening. I want to thank the Japan Financial News
Company for arranging this program and for the invitation from President Mizushima to
address this distinguished audience. This morning, I visited Commissioner Hatanaka
and Vice Commissioner Kono of the Japan Financial Services Agency. Tomorrow I will
visit Governor Kuroda and Deputy Governor Nakaso of the Bank of Japan, and
Governor Tanabe and Deputy Governor Obata of the Deposit Insurance Corporation of
Japan.
These discussions are important because Japan and the United States are home to 11
of the globally active financial companies designated as being systemically important by
the Financial Stability Board (FSB) of the G-20. Japan is the home country for three
global systemically important financial institutions, and the United States is the home
country for eight. These global, systemically important financial institutions – often
referred to as G-SIFIs – are large, complex and highly integrated companies with
significant operations worldwide. The U.S. G-SIFIs have major operations in Japan;
likewise, Japan's G-SIFIs have major operations in the United States. Further, these
institutions are important counterparties to each other. Given the significance of Japan
and the United States in the global operation of these companies, cooperation and
coordination among regulatory authorities in our countries is particularly important both
for the orderly resolution of G-SIFIs and for maintaining financial stability in Japan and
the United States.
I would note that the FDIC was pleased to learn that the Diet in Japan passed the Law
with Regard to Amendment of the Financial Instruments and Exchange Act, Etc. in June
2013. The new legislation, among other things, expands the scope of the existing bank
resolution regime in Japan to cover not only deposit-taking financial institutions but also
insurance companies, securities firms, financial holding companies, and foreign bank
branches. The new legislation also gives the Deposit Insurance Corporation of Japan
operating responsibilities for the orderly resolution of a G-SIFI.
The new orderly resolution mechanism may be triggered after the deliberation of the
Financial Crisis Response Council once the Prime Minister confirms the need to
implement the mechanism to avoid severe turmoil in financial markets or the financial
system in Japan. The Financial Crisis Response Council is composed of the Prime
Minister, the Chief Cabinet Secretary, the Minister of Finance, the Minister of State for
Financial Services, the Governor of Bank of Japan, and the Commissioner of the Japan
Financial Services Agency.
The resolution measures available to the Japanese regulatory authorities are similar to
those of the U.S. resolution regime for SIFIs. They include write-downs of equity,
conversion of debt to equity, a stay of early termination rights on qualified financial
contracts, and the provision of liquidity if necessary. We understand that this legislation
is in compliance with the FSB's Key Attributes of Effective Resolution Regimes for
Financial Institutions. We look forward to the legislation's taking effect in March 2014
and learning about the implementing rules that are currently being prepared.
Both of our countries have made great progress in enacting legislation that would allow
us to resolve a failed or failing G-SIFI. However, the success of our efforts will depend
heavily on our ability to work with one another should one of these institutions require
resolution. In this regard, the FDIC places a high priority on deepening our working
relationships with our Japanese counterparts.
The meetings we are having with the Japanese authorities reflect the willingness of the
FDIC and our Japanese colleagues to cooperate in the interest of fulfilling our
respective statutory obligations. It also provides a means to further our understanding of
the complexities of the cross-border operations of our respective G-SIFIs. We look
forward to continuing to work with our Japanese colleagues at the principal and staff
levels to meet our respective goals of maintaining confidence and stability in the
financial systems of Japan and the United States, and to be able to manage the orderly
resolution of a global SIFI.
My remaining remarks this evening will focus on two subjects important to both Japan
and the United States: the development of a viable strategy for resolving G-SIFIs and
the importance of international cooperation and communication in cross border
resolution. . I will focus on the FDIC's efforts in both of these areas.
Broadly speaking, prior to the recent crisis, the major national authorities in the U.S. and
abroad did not envision that G-SIFIs could fail, and thus little thought was devoted to
their resolution. G-SIFIs, although large and complex, were considered to be well-
diversified with global operations, putting them, it was thought, at a low risk of failure. It
was assumed that G-SIFIs had ready sources of liquidity and, should problems arise,
that they would be able to raise large amounts of equity or debt. In hindsight, that
proved to be a mistaken assumption. After Lehman Brothers filed for bankruptcy,
market liquidity dried up and the capital markets were unwilling to provide additional
capital to financial firms whose viability appeared uncertain.
Financial Crisis Response Council once the Prime Minister confirms the need to
implement the mechanism to avoid severe turmoil in financial markets or the financial
system in Japan. The Financial Crisis Response Council is composed of the Prime
Minister, the Chief Cabinet Secretary, the Minister of Finance, the Minister of State for
Financial Services, the Governor of Bank of Japan, and the Commissioner of the Japan
Financial Services Agency.
The resolution measures available to the Japanese regulatory authorities are similar to
those of the U.S. resolution regime for SIFIs. They include write-downs of equity,
conversion of debt to equity, a stay of early termination rights on qualified financial
contracts, and the provision of liquidity if necessary. We understand that this legislation
is in compliance with the FSB's Key Attributes of Effective Resolution Regimes for
Financial Institutions. We look forward to the legislation's taking effect in March 2014
and learning about the implementing rules that are currently being prepared.
Both of our countries have made great progress in enacting legislation that would allow
us to resolve a failed or failing G-SIFI. However, the success of our efforts will depend
heavily on our ability to work with one another should one of these institutions require
resolution. In this regard, the FDIC places a high priority on deepening our working
relationships with our Japanese counterparts.
The meetings we are having with the Japanese authorities reflect the willingness of the
FDIC and our Japanese colleagues to cooperate in the interest of fulfilling our
respective statutory obligations. It also provides a means to further our understanding of
the complexities of the cross-border operations of our respective G-SIFIs. We look
forward to continuing to work with our Japanese colleagues at the principal and staff
levels to meet our respective goals of maintaining confidence and stability in the
financial systems of Japan and the United States, and to be able to manage the orderly
resolution of a global SIFI.
My remaining remarks this evening will focus on two subjects important to both Japan
and the United States: the development of a viable strategy for resolving G-SIFIs and
the importance of international cooperation and communication in cross border
resolution. . I will focus on the FDIC's efforts in both of these areas.
Broadly speaking, prior to the recent crisis, the major national authorities in the U.S. and
abroad did not envision that G-SIFIs could fail, and thus little thought was devoted to
their resolution. G-SIFIs, although large and complex, were considered to be well-
diversified with global operations, putting them, it was thought, at a low risk of failure. It
was assumed that G-SIFIs had ready sources of liquidity and, should problems arise,
that they would be able to raise large amounts of equity or debt. In hindsight, that
proved to be a mistaken assumption. After Lehman Brothers filed for bankruptcy,
market liquidity dried up and the capital markets were unwilling to provide additional
capital to financial firms whose viability appeared uncertain.