SEOUL The Financial Stability Board has agreed on a broad framework for dealing with "too big to fail banks" according to a letter sent by board chairman Mario Draghi.
In a letter to the Group of 20 leaders seen by Reuters, Draghi says the FSB has "agreed a policy framework, work processes and timelines for addressing the systemic and moral hazard risks associated with SIFIs (systemically important financial institutions)."
The letter sets out five key points, including the requirement that such institutions and "in particular global SIFIs" have additional capacity to absorb losses beyond the Basel rules on capital and liquidity.
However the letter does not specify what additional measures such global institutions would be subject to, although a more detailed report is expected on Friday after the G20 leaders' summit.
There has been much debate over whether such banks should be subject to additional capital surcharges. Switzerland has already imposed them, while France and Japan are believed to oppose such extra measures.
On Wednesday, the chairman of the Basel Committee on Banking Supervision Nout Wellink signalled that some countries may have the freedom not to impose capital surcharges on systemic banks within their jurisdiction.
Draghi's letter says that global - rather than national -
systemically important financial institutions will be subject to a sustained process of "mandatory recovery and resolution planning."
It adds that authorities should be able to demand these banks make changes to their legal and operational structure if it appears their resolution regimes are not robust enough.
Presenting the full package of financial regulation changes drawn up by the FSB, which includes the Basel III rules on bank capital and improving overall supervision, Draghi stresses they must be implemented in a globally consistent manner.
"Full and internationally consistent implementation of the agreed reforms will be essential if they are to have the impact on global financial stability that you intend," he writes.
Bankers had expressed concern ahead of the G20 summit that global co-ordination of regulatory changes could start to slide.
"There is a concern that we see some sort of re-fragmentation of the regulatory framework," Deutsche Bank chief executive Josef Ackermann said at the G20 CEO summit in Seoul.
(Writing by Rachel Armstrong; Editing by Tomasz Janowski)
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