FSB Welcomes US Proposals for Reducing Moral Hazard Risks
The proposals announced by the US are among a range of options and approaches under consideration by the Financial Stability Board (FSB) in its work to address the moral hazard risks posed by too-big-to-fail (TBTF) institutions.
This work, which began last fall, will result in recommendations to G20 leaders in October 2010. The FSB will publish an interim report on this work shortly after the June G20 Summit.
Several other options for addressing the TBTF problem are being considered by the FSB. These include: targeted capital, leverage, and liquidity requirements; improved supervisory approaches; simplification of firm structures; strengthened national and cross-border resolution frameworks; and changes to financial infrastructure that reduce contagion risks.
A mix of approaches will be necessary to address the TBTF problem, given the different types of institutions and national and cross-border contexts involved. At the same time, these approaches must preserve an integrated financial services market and not create regulatory arbitrage through an uneven playing field.