FSB studies systemic risk caused by potential failure of pension funds
GLOBAL – The Financial Stability Board (FSB) is currently developing assessment methodology to determine whether financial institutions other than banks and insurance companies could pose systemic risk in the market.
The FSB said it was investigating the impact of a collapse and said it was not ruling out extending the "too-big-to-fail" resolution to pension funds.
Talking to IPE, Eva Hüpkes, adviser on regulatory policy and cooperation at the FSB, said she could not comment at that stage on what type of financial institutions would be considered as "systemically important financial institutions".
However, Hüpkes did not reject out of hand the possibility of including pension funds in the group of systemically important financial institutions if they were deemed to cause systemic risk by their potential failure.
"When the FSB adopted in 2011 the key attribute of a resolution regime, the 'too-big-to-fail' notion was primarily directed towards banks due to the nature of their activities", she said.
"But the scope from the beginning was not limited to any specific type of institutions."
Hüpkes went on to say that the first question to ask would be whether the failure of a pension fund or any other financial institution would lead to a systemic risk.
"There is still work being done on the assessment methodology for the non-bank and non-insurance sector," she added. "This work is underway and has not been completed yet."
According to her, the FSB is set to publish a final report on the assessment methodology before the next G20 summit, which will be held in St. Petersburg on 5-6 September.
Last month, the FSB extended the "too-big-too-fail" resolution to insurance companies, after the authority listed nine global systemically important insurers – namely Allianz, American International Group, Assicurazioni Generali, Aviva, AXA, MetLife, Ping An Insurance (Group) Company of China, Prudential and Prudential Financial.
Commenting on the possibility of including pension funds in the group of systemically important financial institutions, Mirzha de Manuel, researcher at the Centre for European Policy Studies (CEPS) in Brussels, said that it was "important" to note that banks, insurers and pension funds were not the same and their collapse posed different kinds of risks.
According to him, assessing whether some pension funds could be included in the group depended on the size of the institution.
"It is clear that if a major insurer or a major pension plan were to fail, there would be some major consequences for citizens and ultimately one could expect some form of a bailout depending on the composition of the pension system in the EU countries," he said.
"However, seeing pension funds fail is very unlikely to happen, of course."