Many developed countries are trying to fill holes in prudential regulation of financial services companies – and at least one has combined prudential oversight of banks and insurers.
Members of the Financial Stability Board (FSB), Basel, Switzerland, briefly mention the idea of combining bank and insurance regulation in a 33-page progress report prepared for the Group of 20 (G20) developed countries.
G20 leaders set up the FSB to help it come up with strategies for increasing the stability of the world financial system.
The G20 leaders recently completed a summit in Seoul, South Korea, and concluded by endorsing an FSB policy framework for discouraging “systemically important financial institutions” (SIFIs) from taking excessive risk.
In that framework, the FSB lumps big insurers together with other types of SIFIs.
“SIFIs are financial institutions whose disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity,” the G20 leaders say in a summit press release.
The G20 leaders say a SIFI policy framework should include:
- A resolution framework and other measures to ensure that all financial institutions can be resolved safely, quickly and without destabilizing the financial system and exposing the taxpayer to the risk of loss.
- A requirement that SIFIs and initially in particular global SIFIs (G-SIFIs) have higher loss absorbency capacity to reflect the greater risks that these institutions pose to the global financial
- More intensive supervisory oversight for financial institutions which may pose systemic risk.
- Robust core financial market infrastructures to reduce contagion risk from the failure of individual institutions.