Following a consultation last year, the Financial Stability Board (FSB) has published a report on financial resources and tools for CCP resolution. In it, the group introduces a toolbox as a new global standard for supporting the resolution of systemically important CCPs, with the aim of maintaining financial stability and the continuity of a CCP’s critical function in this adverse event.
The new standard requires that adequate resources and tools for liquidity management, loss-absorption, and recapitalisation are available should CCP resolution become necessary. To support this, FSB’s toolbox comprises seven resolution-specific tools that resolution authorities of systemically important CCPs are encouraged to consider. Not all seven tools have to be used – authorities may pick their own combination to support their needs.
Flexible design
The tools are: bail-in bonds; regional, national, or supranational resolution funds; resolution-specific insurance; resolution-specific third-party contractual support; resolution cash calls; statutory or contractual variation margin gains haircut (VMGH) for resolution; equity in a first-loss position in resolution.
FSB states that jurisdictions should “make their approach to calibrating the resolution-specific resources and tools in the toolbox transparent”.
To follow up, FSB intends to monitor implementation of the new standards in systemically important CCPs in more than one jurisdiction. The findings will be published in an upcoming annual resolution report.