U.S. Board of Governors of the Federal Reserve System Vice Chairman for Supervision Randal Quarles discussed the importance of finding the correct balance in cross-border resolution. He noted that while both single-point-of-entry and bail-in concepts hold promise for overcoming the challenges associated with cross-border resolution, effective cross-border resolution will require cooperation from numerous stakeholders, including home- and host-country regulators, which will require finding the proper balance between flexibility and certainty. Vice Chairman Quarles remarked that home-country regulators prefer the flexibility to allow for capital to easily move within a financial institution, while host-country regulators prefer to have the certainty that adequate capital will be available to repay local customers and creditors in times of stress. Quarles explained that the concepts of flexibility and certainty also apply to other stakeholders in the resolution process, and that these stakeholders can also have a destabilizing effect on an institution during times of stress. He noted that the United States and United Kingdom have traditionally held a unique perspective with respect to cross-border resolution, as both the home- and host-country regulator for a number of financial institutions, noting that the European Union will also likely soon be in a similar position, which provides regulators with strong incentives to view benefits and risks from both perspectives. In discussing the U.S. approach to both capital and liquidity regulations and to resolution, Vice Chairman Quarles noted that from a competitive equity standpoint, U.S. regulations are focused on placing U.S. subsidiaries of non-U.S. financial institutions on equal footing with their U.S. domestic counterparts. He did, however, suggest the possibility that regulations in the U.S. (and globally) can be further tailored and adjusted to streamline and improve the likelihood of successful resolution of both non-U.S. financial institutions operating in the United States and U.S. financial institutions operating abroad. Quarles closed by noting that the Federal Reserve Board would continue to advocate for increased standardization and implementation of regulatory capital rules, increased global transparency and the removal of impediments to a successful single-point-of-entry resolution.
View full text of Vice Chairman Quarles’s remarks.
