Resolution Plans and Resolution Strategies: Do They Make G-SIBs Resolvable and Avoid Ring Fence?

Abstract

The paper analyses the public section of the 2015, 2016 and 2017 resolution plans of the eight largest US Global Systemically Important Banks (G-SIBs). It unfolds the beneficial effects that the statutory obligation to draft such plans had on the rationalisation of groups’ structure and on US G-SIBs insolvency preparedness. However, the detailed analysis of those plans also shows how banks have almost uniformly chosen a Single Point of Entry (SPOE) resolution strategy which may not be rapid and orderly and may not be the most effective strategy overall given the location and the type of entities covered. This leads the author to argue that the choice of an SPOE may be the preferred option of the relevant US Agencies, leading to a phenomenon of ‘regulatees’ capture’. The paper also shows how in case of insolvency of a US based G-SIB with entities located in the EU, tensions may arise with the relevant EU authorities. This is mainly because of the uncertainty driven: by non-uniform triggering events; by the existence of two types of resolution plans in the US; by the over-reliance on pre-positioned loss absorbing capital at group level (which may not overcome the double leverage problem); by deficiencies in US law to deal with the liquidation of G-SIBs under an SPOE; and by a possibly different regulatory culture in the US and the EU which may afford dissimilar degrees of protection to bank stakeholders.