Eighteen global banks have agreed to sign a new "resolution stay protocol" developed between the International Swaps and Derivatives Association and the Financial Stability Board.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," ISDA said over the weekend.The stay "is intended to give regulators time to facilitate an orderly resolution of a troubled bank," Scott O'Malia, ISDA chief executive, said.The protocol "essentially enables adhering counterparties to opt into certain overseas resolution regimes via a change to their derivatives contracts," ISDA said in an outline.The FSB said the protocol would "help to reduce the risk that resolution of a bank with significant cross-border operations triggers a cascade of termination events in bilateral OTC derivatives contracts."These could lead to "disruption in the wider market and undermine the measures that the authorities are taking to maintain financial stability and to prevent costs to the taxpayer," the FSB said."While many existing national resolution frameworks impose stays on early termination rights following the start of resolution proceedings, these stays might only apply to domestic counterparties trading under domestic law agreements, and so might not capture cross-border trades," ISDA explained.
"By adhering to the protocol, the G-18 banks will extend the coverage of stays to more than 90 per cent of their outstanding derivatives notional, and that proportion will increase as other firms sign the Protocol."The terms of the Protocol have been agreed in principle, and it is scheduled for implementation in early November, before the Brisbane G20 summit.The protocol will take effect from January 2015, "and will govern both new and existing trades between adhering parties."Banks contracting are: Bank of America Merrill Lynch, Bank of Tokyo-Mitsubishi UFJ, 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.A "global infrastructure initiative" and a new "global infrastructure hub" may be features of next month's G20 meeting in Brisbane.Treasurer Joe Hockey yesterday outlined his goal of a "multi-year set of actions to increase the quantity and quality of infrastructure across the G20 and beyond.""We have also agreed on measures to stabilize the global financial system and ensure integrity," Hockey said.