The resolution framework for banks exists to address the “too big to fail” problem, where the failure of a major bank could have severe systemic consequences. This framework has its origins in both the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS).

The FSB was established in April 2009 as a successor to the Financial Stability Forum (FSF) to promote international financial stability. It is an international body that coordinates the work of national financial authorities and international standard-setting bodies. One of the FSB’s key mandates is to develop and promote the implementation of effective resolution regimes for financial institutions.

On the other hand, the BCBS is a committee of banking supervisory authorities established by the central bank governors of the Group of Ten countries in 1974. Its mandate is to strengthen the regulation, supervision, and practices of banks worldwide to enhance financial stability. The BCBS has been instrumental in developing international banking standards, including those related to capital adequacy (Basel I, II, III) and liquidity (Basel III).

The resolution framework as we know it today has been developed through collaboration between these two bodies and other stakeholders. The FSB has taken a lead role in promoting the development and implementation of effective resolution regimes, particularly for systemically important financial institutions (SIFIs). The FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions, first published in 2011 and updated in 2014, 2015, and 2019, serves as a comprehensive framework for jurisdictions to establish resolution regimes that can facilitate the orderly resolution of failing banks without resorting to taxpayer-funded bailouts.

The BCBS, drawing on its expertise in banking supervision and regulation, has also contributed significantly to the development of the resolution framework. The BCBS’s guidance and standards on resolution planning, such as the “Principles for Effective Resolution Regimes” and the “Guidance on the application of the Core Principles for Effective Banking Supervision to the regulation and supervision of institutions relevant to financial stability,” provide further details on how banks and supervisors should approach resolution planning.

In summary, while the FSB has been a driving force behind the development of the resolution framework, working to establish broad international standards, the BCBS has played a crucial role in providing specific guidance and standards tailored to the banking sector. Both organizations continue to collaborate to enhance the effectiveness of resolution regimes and promote financial stability globally.

Various legal jurisdictions implement the framework into their own systems via legislation. In South Africa, for example, the resolution framework for banks and other financial institutions is implemented primarily through the Financial Sector Regulation Act (“FSR Act”) of 2017. The FSR Act establishes the legal framework for the prudential regulation and supervision of financial institutions, including banks, insurers, and other financial services providers. The Act aims to promote financial stability, protect consumers, and enhance the integrity and efficiency of the financial sector.

The primary authority responsible for implementing the resolution framework in South Africa is the Prudential Authority (“PA”). The PA operates within the framework of the South African Reserve Bank (“SARB”), the country’s central bank. The PA is responsible for the prudential regulation and supervision of banks, insurers, and certain other financial institutions.

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