Davis Polk partner and Financial Institutions practice chair Randy Guynn was quoted in Risk.net from a roundtable hosted by the Securities Industry and Financial Markets Association. The roundtable participants discussed the approach to probable changes to the Basel III endgame package laid out by Federal Reserve vice-chair Michael Barr.

Arguing that resolution planning and total loss-absorbing capacity are more important than ever-increasing common equity tier one ratios, Randy said, “To the extent that a G-Sib [global systemically important bank] shows it’s got sufficient long-term debt or other gone-concern capital to make the resolution plan feasible, that will allow it to be resolved in a way that doesn’t foster contagion and require a government bailout, so there ought to be a reflection of that in a reduction of the G-Sib surcharge.”

Discussing the Fed’s review into the failure of SVB, and possible lessons for bank supervision, Randy noted the report largely ignored the question of whether the FDIC could have done more to avert or blunt the crisis. In particular, he said lawmakers need to know whether there was a coherent plan for resolving SVB if it failed, and if so, whether the FDIC’s eventual actions resembled that plan at all.

Randy encouraged the U.S. Congress to require the FDIC to develop and publish its own resolution plans for all banks covered by the rule. “One of the biggest problems during a financial crisis is no-one has any idea what’s going to happen, what the FDIC is going to do, and therefore they panic and run,” he said. “There needs to be a lot more transparency about what they plan to do with respect to a large bank that might fail.”

“Fed urged to focus on resolvability in Basel III endgame,” Risk.net (July 14, 2023) (subscription required)

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