implications of the too - big - to - fail reforms for global banking | deutsche bundesbank implications of the too - big - to - fail reforms for global banking remarks by claudia m. buch, vice - president, deutsche bundesbank prepared for the iifbpi colloquium on cross - border resolution & regulation 09. 07. 2020 | virtuell | claudia buch 1 motivation 2 the capacity of globally active banks to absorb shocks has increased 3 there has been progress with regard to the feasibility and credibility of resolution 4 this progress has not come at the expense of lending to the economy or increase fragmentation of ﬁnancial markets 5 more needs to be done 6 further reading 1 motivation in the aftermath of the 2008 global ﬁnancial crisis, the g20 endorsed a number of reforms intended to make the ﬁnancial system safer. a core element of these reforms are policies that are addressing the “ too - big - to - fail ( tbtf ) reforms ” in order to reduce moral hazard and systemic risk. these reforms include standards for additional loss absorbency through capital surcharges and requirements for total loss - absorbing capacity, recommendations for enhanced supervision and heightened supervisory expectations, and policies to put into place effective resolution regimes and resolution planning to improve the resolvability of banks. many of the systemically important banks affected by these reforms operate across borders. effective policies to address the too - big - to - fail issue thus require international policy coordination, and the financial stability board ( fsb ) plays an important role in this regard. whether a bank is considered to be globally systemically important is based on an internationally agreed set of criteria. on this basis, the fsb publishes an annual list of about 30 globally systemically important banks or g - sibs. in https : / / www. bundesbank. de / en / press / speeches / implications - of - the - too - big - to - fail - reforms - for - global - banking - 836618 1 / 10 8 / 4 / 2020 implications of the too - big - to - fail reforms for global banking | deutsche bundesbank addition, there are domestic systemically important banks or d ‐ sibs. these are designated by their home authorities, and their number stood at 132 at the end of 2018. fsb standards provide that host authorities should impose internal total loss - absorbing capacity ( tlac ) requirements for material subgroups of systemically important banks residing in their jurisdiction. resolution plans

4 / 2020 implications of the too - big - to - fail reforms for global banking | deutsche bundesbank relative funding cost advantage of systemically important banks estimated funding cost advantages are also typically lower in jurisdictions that have implemented resolution reforms more fully, as measured by the resolution reform index. this suggests that more comprehensive implementation of resolution reforms is associated with a reduced funding advantage for sibs, and hence with less economic distortion. in addition, the evaluation has looked at credit ratings and bail - in premia implicit in credit default swap ( cds ) spreads, which are larger for riskier banks. both of these results suggest that market discipline has improved. 4 this progress has not come at the expense of lending to the economy or increase fragmentation of financial markets generally, the evaluation ﬁnds that the beneﬁts of the reforms signiﬁcantly outweigh the costs. the evaluation looked at broader effects of reforms on the ﬁnancial system and on the real economy, and it looked at costs and beneﬁts from the social perspective, which is not the same as the perspective of the private sector. for example, successfully lowering implicit subsidies means higher funding costs for banks – but at the same time lower costs for taxpayers. the ﬁnancial crisis has slowed down, but not reversed, the long - term trend towards global ﬁnancial integration. the aggregate retrenchment in international banking since the crisis stems from a decline in cross - border lending by european banks. cross - border lending between other regions has continued to expand. at the same time, lending by international banks has shifted to more stable locally - funded sources in local currencies. cross - border lending by advanced economy banks to borrowers in emerging market and developing economies ( emdes ) has grown since the crisis, and intraregional lending has also increased within emdes, in particular in latin america and asia. https : / / www. bundesbank. de / en / press / speeches / implications - of - the - too - big - to - fail - reforms - for - global - banking - 836618 6 / 10 8 / 4 / 2020 implications of the too - big - to - fail reforms for global banking | deutsche bundesbank there is no evidence that the implementation of tbtf reforms has reduced cross - border lending. total syndicated lending, for example, has been increasing after a sharp drop in 2009. while g - sibs lend to foreign borrowers more than other banks do