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Re-shaping the Global Financial Architecture: Dual SIFIs' Role

sition from Basel II to Basel III. On the field of SIFIs regulation, the Basel III Agreement has to achieve a much stronger shock absorbing capacity than it has been in the past.

During the crisis, on national level different policy measures on SIFIs were applied. A list of regulatory measure aiming at preventing bigger losses caused by SIFIs failures can be set up as follows: 1. Resolution of SIFIs in case of a failure. 2. Dissolution of SIFIs. 3. Limiting the size of SIFIs. 4. Reducing the scope of SIFIs activities. 5. Demotivating the size growth by taxation. At the intemational level, a set of tools, methods and indicators is being prepared within the Basel III. The two main aims of these arrangements are the foliowing: 1. Reduce the probability as well as the impact of an SIFI failure. 2. Reduce the cost to the public sector should a decision be madę to intervene.

For example, the Basel Committee on Banking Supervision, one of the Committees of the Financial Stability Board (FSB). recently declared that a methodology that embodies the key components of systemie importance was developed. These components are size, interconnectedness, substitutability, global activity and complexity. The methodology can serve as a basis for the differentiated treatment of systemie institutions without needing to specify a fixed list of such institutions¹.

A similar view recently was pronounced by the Intemational Institute of Finance: it is preferable, not to publish any public list of SIFIs². A need for a better co-ordination of national and intemational efforts on the field of SIFIs regulation and superyision are considered to be an imminent task and an im-portant challenge.

To all SIFIs the following policies and regulations probably will be applied: 1. Higher loss absorbency capacity with application to G-SIFI initially; effective resolution framework; intensive superyision; robust core Financial market infra-structures to reduce contagion risk. 2. Supplementary prudential regulations by national authorities. To Global SIFIs probably the following regulations will be applied: 1. Deyelopment of recovery and Resolution Plans; firm-specific cooperation agreement for X-border resolution. 2. Peer Review Council to monitor implementations. It is probable that G-SIFIs will be charged with higher loss absorbency capacities. Such tools as Capital surcharges, contingent Capital and bail-in-debt instruments for G-SIFIs loss absorbency regulation will be applied.

1

   S. Walter: Basel III: Stronger Banks and a Morę Resilient Financial System. Conference on Basel III. Financial Stability' Institute. Basel 6 April 2011. p. 5. Basel Committee on Banking Superyision. spll0406.pdf.

2

   Achieving Effective Superyision: An Industry Perspective. Institute of Intemational Finance. July, 2011.