December 1, 2014
Comments on “Cross-border recognition of resolution action”
issued by the Financial Stability Board
Japanese Bankers Association
We, the Japanese Bankers Association (JBA), would like to express our gratitude forthis opportunity to comment on Cross-border recognition of resolution action releasedon September 29, 2014 by the Financial Stability Board (the “FSB”).
We respectfully expect that the following comments will contribute to your further
discussion on this issue.
<General Comments>
We pay our respect to a FSB’s series of intensive discussions made as part of its
initiatives to enhance the effectiveness of cross-border resolution with a view to
avoiding systemic risk arising from failure of financial institutions and are generally insupport of proposals made in the Consultative Document.
Since the promotion of public awareness on a series of initiatives to enhancecross-border resolution provided in the Consultative Document would contribute to anincrease in public confidence in the stability of financial system, it is respectfully
requested to proactively promote the awareness of public including investors that legal
certainty of statutory bail-in in cross-border resolution is ensured through this initiative.
With respect to temporary stay on the exercise of early termination rights proposedin the Consultative Document, there is also a concern that financial institutions that donot adopt the protocol issued by the International Swaps and Derivatives Association(ISDA) which supports the cross-border implementation may trigger financial crisis. It
is therefore requested to encourage broader financial institutions as well as G18 (18major global financial institutions which have agreed to the adoption of the protocol) toadopt the protocol, and to promote the adoption of the protocol with a fair andtransparent process so as to ensure no disadvantage is caused to those financial
institutions adopting the protocol ahead of others.
The following discusses our responses to individual questions raised in theConsultative Document.
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[Specific Comments] (Our responses to the questions)
Question 1
Are the elements of cross-border recognition frameworks identified in the reportappropriate? What additional elements, if any, should jurisdictions consider includingin their legal frameworks?
(Response)
In general, the elements of cross-border recognition frameworks identified in theConsultative Document are considered to be appropriate. The following requests
however should be considered.
(Requests)
As one of “1.2 Elements of cross-border recognition frameworks”, the reportspecifies “3．The legal framework should clearly identify the grounds for granting
recognition of foreign resolution proceedings or adopting measures to support foreignresolution actions.” This element provides three cases that grant jurisdictions of theability to refuse the recognition of foreign resolution measures ((i) would have adverse
effects on local financial stability; (ii) contravene local public policy; and (iii) would
have material fiscal implications). These cases however should be described in a more
limited and specific manner. In particular, the expressions of (i) and (iii) are too
ambiguous that these cases may allow jurisdictions to determine to refuse therecognition of foreign resolution measures only for the purpose of protecting creditors
in its home jurisdiction, even if it is not appropriate to do so.
We also propose to develop a procedure for refusing the recognition of foreign
resolution measures. For example, if a jurisdiction refuses the recognition of foreign
resolution proceedings, such a refusing jurisdiction is required to disclose theappropriateness of grounds for refusal. Or a framework needs to be developed to carryout ex-post verification for the appropriateness of refusing the recognition of foreign
resolution proceedings, which would promote the prevention of inappropriate refusal of
the recognition.
We expect that an internationally-aligned guideline is established for developing
cross-border recognition frameworks.

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Question 2
Do you agree that foreign resolution actions can be given effect in different ways, either
through recognition procedures or by way of supportive measures taken by domestic
authority under its domestic resolution regime? Do you agree with the report’s analysisof these approaches?
(Response)
In general, we support the proposal to give effect foreign resolution actions either
through “recognition procedures” or “supportive measures”. The following requests
however should be considered.
(Request)
It is requested to provide an explicit basic policy through international discussions
in order to clearly distinguish between areas that can be addressed through “recognitionprocedures” and those that can be addressed by “supportive measures”.
The above request is made on the grounds that resolvability of respective financial
institutions may be undermined if the scope of “recognition procedures” and“supportive measures” is ambiguous. Establishing a basic policy would help reinforce
the legal certainty and predictability under the applicable legal framework.
Question 3
Do you agree that achieving cross-border enforceability of (i) temporary restrictions or
stays on early termination rights in financial contracts and (ii) ‘bail-in’ of debt
instruments that are governed by the laws of a jurisdiction other than that of the issuingentity is a critical prerequisite for the effective implementation of resolution strategies
for global systemically important financial institutions (G-SIFIs)? Is the effective
cross-border implementation of any other resolution actions sufficiently relevant for theresolvability of firms that the FSB should specifically consider ways of achieving theircross-border enforceability?
(Response)
We support that (i) and (ii) are critical prerequisites for the effective implementationof resolution strategies for G-SIFIs.
For (i), however, it is necessary to promote the adoption of the new protocol
currently being developed by the ISDA with a fair and transparent process. In
particularly, qualitative and quantitative impact analyses should be carried out for theadoption of this protocol to ensure financial institutions which have adopted the3protocol ahead of others may not suffer disadvantages. If any adverse impact would beidentified, measures should be taken to eliminate such adverse impact.

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