International Banks' commitment to enhancing systemic stability: industry initiative to remove cross-border close-out risk

The International Swaps and Derivatives Association, (ISDA) today announced that 18 major global banks (G-18) have agreed to sign a new ISDA Resolution Stay Protocol, which has been developed in coordination with the Financial Stability Board to support cross-border resolution and reduce systemic risk. This represents a major step in strengthening systemic stability and reducing the risk that banks are considered ‘too big to fail’.

The Protocol will impose a stay on cross-default and early termination rights within standard ISDA derivatives contracts between G-18 firms in the event one of them is subject to resolution action in its jurisdiction. The stay is intended to give regulators time to facilitate an orderly resolution of a troubled bank. Background information on ISDA Resolution Stay Protocol

The timing of implementation as planned considers that the first wave of banks will adopt the Protocol before the G-20 meeting in Brisbane in November. This wave involves 18 major banks and certain of their affiliates. They will adhere to the protocol on a voluntary basis by early November 2014. The protocol will become effective for those firms on January 1, 2015 – except for the US bankruptcy related provisions, which become effective only upon relevant regulations being issued by US regulators.

As proposed, the ISDA Resolution Stay Protocol is a major component of a regulatory and industry initiative 'to address the too-big-to-fail issue by improving the effectiveness of cross-border resolution actions against a big bank – therefore ensuring taxpayer money is never again needed to prop up a failing institution.

The Protocol is one of the results of the St. Petersburg G20 Summit in 2013, where the Financial Stability Board made a commitment to "develop policy proposals on how legal certainty in cross-border resolution can be further enhanced" by the time of the Brisbane Summit. The FSB Consultative Document

The consultative document proposed a package of policy measures and guidance consisting of some elements that jurisdictions should consider including in their statutory cross-border recognition frameworks in order to enable effective cross-border resolution as required by the FSB Key Attributes of Effective Resolution Regimes, and contractual approaches to cross-border recognition that the FSB agreed to support and promote pending widespread adoption of comprehensive statutory frameworks.

The FSB Press Release

The list of the adhering parties