18 Banks Voluntarily Adopt ISDA Resolution Stay Protocol

October 20th, 2014

Sponsored by the International Swaps and Derivatives Association (ISDA) and the Financial Stability Board, eighteen large global banks voluntarily agreed to a new ISDA Resolution Stay Protocol.  The eighteen covered entities (G-18) include Bank of America, Bank of Tokyo-Mitsubishi, Barclays, BNP Paribas, Citigroup, Credit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC, JP Morgan Chase, Mizuho Financial Group, Morgan Stanley, Nomura, Royal Bank of Scotland, Societe Generale, Sumitomo Mitsui Financial Group and UBS.

The Resolution Stay Protocol was passed on October 11, 2014 and will serve as an additional measure to mitigate the systemic risk in the global banking system and better manage “too big to fail” financial institutions. The Resolution Stay Protocol will be applied to cross-default and early termination rights in the event that a standard ISDA derivatives contract is subject to resolution action.  In effect, the new rules will provide global regulators sufficient time to manage the wind down of a distressed financial institution.

While the agreement is certainly notable, the United States (US) and European Union (EU) already have mandatory stays established by the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) and Bank Recovery and Resolution Directive correspondingly.  Notwithstanding, the new Resolution Stay Protocol should take meaningful steps to ensure more orderly, controllable and safer resolutions of failing banks in the future.  Additionally, global regulators plan to adopt regulations to implement the requirements of the Resolution Stay Protocol to apply to more financial institutions.

 

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