Resolution Regimes For Financial Institutions Research Articles

Bank resolution in South Africa: Recent developments

AbstractIn this contribution, the authors explore recent developments in South Africa's approach to bank resolution, assessing compliance of its new regime with the Financial Stability Board's Key Attributes of Effective Resolution Regimes for Financial Institutions (KAs). Emphasizing the imperative for orderly resolutions to avert financial crises, the authors scrutinize the post‐2008 Global Financial Crisis regulatory landscape. Until June 2023, South Africa's approach to bank failure was limited to curatorship and liquidation under the Banks Act 94 of 1990. Addressing gaps identified by international bodies such as the Financial Stability Board, International Monetary Fund, and the World Bank, and taking lessons from the failure of African Bank in 2014, South Africa has transitioned to a Twin Peaks regulatory model and also introduced a comprehensive resolution framework effective June 1, 2023, captured in the Financial Sector Regulation Act 9 of 2017. This framework currently applies to banks only. The South African Reserve Bank now holds an explicit financial stability mandate and is designated as the resolution authority. The article discusses the design features for an effective resolution regime as recommended in the KAs to benchmark the new South African resolution regime, noting overall compliance. However, it acknowledges the need for further development in certain respects to enhance alignment.

Asset Separation as a Bank Failure Management Tool

The article is devoted to the legal aspects of an asset separation tool as a bank failure management tool. Asset separation tool is provided by FSB Key Attributes of Effective Resolution Regimes for Financial Institutions and Directive 2014/59/EU (Bank Recovery and Resolution Directive, or BRRD). However, it has not been implemented in Ukrainian legislation to date. The article defines key elements required for effective transposition of the asset separation tool. It is fundamentally important to ensure clarity in the authority’s powers to conduct non-performing assets transfer to an asset management company and powers to transfer them back in cases provided in the law, as the framework should be predictable for all stakeholders. General rules for obtaining the consent of owners of the failed banks or any other parties should not be applicable. The assets should be transferred to the asset management company with the view to value maximization or orderly liquidation. An asset separation tool is not a standalone tool and shall be applied along with other tools to deal with bank failures. The article also defines key safeguards and requirements for an asset management company to operate efficiently and mitigate risks of political interference. Most asset management companies designed for bank failure management are owned by the state, and in line with this the BRRD envisages that an asset management shall wholly or partially belong to the state or a resolution authority. The BRRD provides that the resolution authority shall approve a statutory document of the asset management company, management and their remuneration, as well as the strategy and risk profile of the company. At the same time, there should be safeguards to ensure that the asset management company should be commercially oriented and operationally independent. The most efficient asset management companies have a narrow mandate. Special powers may be introduced for an asset management company when the general framework has impediments to the efficient operation of an asset management company. It should be noted that the asset management company has a temporary nature and should be wound up once its goal is reached. Necessary incentives should be introduced in this regard. This could be a sunset clause, defined interim key performance indicators, which should be flexible and regularly reviewed, and financial incentives for staff of the asset management company. It is suggested to introduce amendments to the Law of Ukraine ‘On household deposit guarantee system’ to implement the particularities described in the article.

In search of sharia-compliant resolution framework for islamic banks: The case of Indonesia

Purpose – This paper investigates Sharia concerns on existing bank resolution framework and propose recommendations on how to resolve those concerns in Sharia-compliant manners. It also assesses compatibility of resolution powers mandated by the FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions if applied to resolve failed Islamic bank, especially focusing on operational aspect of executing the resolution options. Methodology – We conduct a series of focus group discussion with various relevant stakeholders, including Indonesian Sharia scholars, regulators, professional associations, Islamic bankers and academics. The discussions were performed in group interviews format, with the authors took part as moderators. The discussions took place between July 2020 to January 2021, and were part of development of fatwa and regulations on the resolution for Islamic banks.Findings – In general, the existing bank resolution framework can be applied to Islamic banks. However, there are some resolution powers of the authority that possesses inherent sharia issues, but are still allowed according to Dewan Syariah Nasional (DSN) (the National Sharia Council). There should be clear measures attached to those powers prior to implementation. For some aspects, some adjustments to the resolution powers are also needed through establishment of infrastructures and regulations, particularly with regards to resolution options.Originality – The novelty of this study is the analysis of suitability of banking resolution issues from Sharia perspective. This paper also serves to enhance awareness on issues related to resolution of Islamic banks and promote wider implementation of Sharia approaches for bank resolution in other jurisdictions.

Ireland

This Note assesses the bank recovery, resolution, and crisis preparedness regime in Ireland. It analyzes laws, policies, procedures, institutional capacity and coordination arrangements for bank failure resolution and for managing financial distress and crises. The assessment is focused on banks under the direct remit of the Central Bank of Ireland and does not evaluate the role played by the European Central Bank and the Single Resolution Board for Ireland’s largest banks. The Note also assesses steps toward adopting a recovery and resolution regime for insurers. The Note is guided by international standards, in particular the Key Attributes of Effective Resolution Regimes for Financial Institutions promulgated by the Financial Stability Board.

People’s Republic of China–Hong Kong Special Administrative Region: Financial Sector Assessment Program-Technical Note-Financial Safety Net and Crisis Management Arrangements

Hong Kong SAR has significantly strengthened its crisis management arrangements through a thorough update of the framework for resolution of financial institutions, as recommended by the 2014 Financial Sector Assessment Program. The 2017 Financial Institutions (Resolution) Ordinance (FIRO) creates a resolution regime that is clear, comprehensive in scope, and closely aligned with the Financial Stability Board (FSB) Key Attributes of Effective Resolution Regimes for Financial Institutions. Some aspects of the FIRO, such as the cross-sectoral scope of the regime, are particularly strong. To implement the regime, the Hong Kong Monetary Authority (HKMA) 2 has established a Resolution Office (RO) with clear operational separation from banking supervision.

France

This pilot assessment of the implementation of the Key Attributes of Effective Resolution Regimes for Financial Institutions (KA)1 in the insurance sector in France has been completed as part of a Financial Sector Assessment Program (FSAP) undertaken by the International Monetary Fund (IMF) during 2018–19. It reflects the regulatory framework and arrangements in place as of the date of the completion of the assessment. The assessment of the effectiveness of the insurance resolution framework involves the review of the legal framework and detailed examination of the policies and practices of the resolution authority in relation to the KAs pursuant to the Key Attributes Assessment Methodology for the Insurance Sector (Methodology).2

Measuring the Implementation of the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions in the European Union

There are lingering concerns about the health of European banks and extensive market commentary about whether post-crisis regulatory reforms in Europe have adequately addressed these concerns. In June 2012, European policymakers released the broad outlines of a proposal for a "European banking union" to strengthen the banking sector and help assuage concerns of investors and depositors, however, uncertainty remains regarding how the new EU bank resolution regime, the Bank Recovery and Resolution Directive (BRRD), will work in practice. This paper addresses whether the BRRD has fulfilled the requirements of the FSB Key Attributes for Resolution Regimes, which many take to be the gold standard bank resolution framework. We find that the BRRD diverges from the FSB Key Attributes or allows variation at the Member State level in multiple areas. The majority of these variations point to slight inconsistencies with the FSB recommendations. That said, some variations may have a larger impact than others.

Bankarski rizik 56 - rizik moralnog hazarda

The exposure to moral hazard risk in business is present both in the economy and in the financial sector, and is manifested as a readiness of the contractual party to take unusual risks or not to enter contracts in good faith. The moral hazard risk in the financial sector may obtain a systemic dimension, hence the Financial Stability Board (FSB) launched an initiative towards G20 with the aim of mitigating the exposure to this risk, caused by systemically important institutions (SIFI). The final version of this initiative titled 'Key Attributes of Effective Resolution Regimes for Financial Institutions' was endorsed at the G20 Summit in Cannes, on 4 December 2011.

SPECIAL ASPECTS OF FINANCIAL ORGANISATIONS INSOLVENCY (BANKRUPTCY) RESOLUTION: INTERNATIONAL AND RUSSIAN APPROACHES

The article analyses approaches to resolving insolvency (bankruptcy) of financial organisations contained in the “Key attributes of effective resolution regimes for financial institutions” adopted by the Financial Stability Board. The means of financial organisations insolvency (bankruptcy) prevention established by Federal insolvency (bankruptcy) Law are analysed. The approaches to preventing insolvency (bankruptcy) of credit institutions and non-credit financial organisations are compared. Special aspects of prevention of insolvency (bankruptcy) of financial organisation are defined.

CrosssBorder Coordination of Bank Resolution in the EU: All Problems Resolved?

Substantial progress has been made, both within the Eurozone and the EU generally, with regard to the legal and institutional arrangements for cross-border bank resolution. The new framework, modeled after the FSB's Key Attributes of Effective Resolution Regimes for Financial Institutions certainly reflects a very strong commitment to cooperative rather than isolationist approaches (such as the ring-fencing of foreign-owned branches in insolvency). The paper evaluates the relevant provisions under both the Bank Recovery and Resolution Directive of 2014 and the Single Resolution Mechanism Regulation in the light of past precedents. It argues that the mere existence of this new framework does not remove residual conflicts in the economic interests of the different jurisdictions involved in cross-border cases. Only future practice will show how these conflicts can be balanced out – and whether the Eurozone, with centralised decision-making by the SRB, will compare favourably against the rest of the EU in this regard. Very likely, the cooperation arrangements as such will have to be complemented by further improvements in terms of the predictability of economic outcomes in order for Member States to submit themselves without reservations to full and unreserved cooperation over time. Even then (somewhat ironically, given the long-standing harmonisation of recognition standards within the EU), the potential for obstructions by national courts, as evidenced by recent court decisions in Germany and the United Kingdom, could yet become a severe, unforeseen source of obstacles to coherent and consistent resolution actions both within the Eurozone and the EU as a whole.

Resolution Frameworks for Islamic Banks

Islamic banking is growing rapidly and its potential impact on global financial stability cannot be underestimated. International standards for resolving banks have evolved after the global financial crisis, culminating in the Financial Stability Board's ('FSB') Key Attributes of Effective Resolution Regimes for Financial Institutions. This paper examines the applicability of the Key Attributes to the resolution of Islamic banks. It concludes that a number of issues would need to be addressed, owing to Islamic banks' unique governance structures and balance sheets. It recommends international guidance for the design of robust Shari`ah -compliant resolution frameworks for jurisdictions with Islamic banks.

Resolution Frameworks for Islamic Banks

Islamic banking is growing rapidly and its potential impact on global financial stability cannot be underestimated. International standards for resolving banks have evolved after the global financial crisis, culminating in the Financial Stability Board’s (“FSB”) Key Attributes of Effective Resolution Regimes for Financial Institutions. This paper examines the applicability of the Key Attributes to the resolution of Islamic banks. It concludes that a number of issues would need to be addressed, owing to Islamic banks’ unique governance structures and balance sheets. It recommends international guidance for the design of robust Shari`ah -compliant resolution frameworks for jurisdictions with Islamic banks.

Reform of Special Resolution Regimes for Financial Institutions in US after Global Financial Crisis

Reform of Special Resolution Regimes for Financial Institutions in US after Global Financial Crisis

金融機関の新たな破綻処理制度と保険会社の課題

金融機関の新たな破綻処理制度と保険会社の課題

The Key Attributes of Effective Resolution Regimes for Financial Institutions - Progress to Date and Next Steps

The financial crisis underscored the need to develop an effective international framework to resolve cross-border financial institutions and groups. The development of such a framework has been a priority for the international community. Many important milestones have been achieved—most notably the adoption by the Financial Stability Board (FSB) of the Key Attributes of Effective Resolution Regimes for Financial Institutions (the Key Attributes) which is emerging as a new (nonbinding) international standard. Fund staff have been heavily involved in their development. The Key Attributes specify essential features that should be part of the resolution framework at both the national and international levels, with the key objective of making resolution feasible without severe systemic disruption and without exposing taxpayers to loss. These features include a comprehensive “toolkit” of resolution powers for national authorities, including powers to: (i) assume control of a financial institution from existing managers and owners; (ii) effect a resolution of the troubled institution through the sale or merger of the entity, the transfer of assets and liabilities of the institution to third parties, or through unilateral debt restructuring or “bail-in”; and (iii) support the resolution through a temporary stay on the execution of early termination rights under financial contracts.

The great British banking experiment: will the restructuring of UK banking show us how to resolve G-SIFIs?

This article discusses the Financial Stability Board (FSB)'s recent “Key Attributes of Effective Resolution Regimes for Financial Institutions” as they would apply to banks, and the extent to which, if implemented, they would make the cross-border resolution of global systemically important financial institutions (G-SIFIs) possible. It also discusses the reforms to the resolvability of UK banks which have been proposed in the Final Report of the UK's Independent Commission on Banking (ICB). It concludes that the FSB's Key Attributes represent a major step forward on the path to resolution of G-SIFIs. However, there remain significant questions about the extent to which they will be rapidly implemented, whether cross-border co-operation and mutual recognition of resolution measures will materialise under crisis conditions, whether the structure of G-SIFIs will be changed to make them resolvable, how concerns about the transmission of contagion through bail-in will be addressed, how resolution will be funded and whether (given the risks of disorderly resolution) national authorities will in practice have the appetite to resolve G-SIFIs rather than bail them out. Given this reality, the ICB's proposals for separation, by subsidiarisation, of UK/EEA retail and other essential activities, and for requiring such activities to be supported by additional primary loss-absorbing capacity that facilitates “bail-in”, make sense, particularly when the vulnerability of the UK economy to its large financial sector is taken into account. While the ICB's proposals will not necessarily to make UK banks safer – in the sense of less likely to need resolution – they should make the resolution of UK/EEA retail and other essential activities substantially simpler and reduce the likelihood of taxpayer support. The UK government is right to reexamine the case for exempting the non-ring-fenced operations of UK banking groups from the additional primary loss-absorbing capacity requirements proposed by the ICB, but dilution of other aspects of the proposals (such as the leverage ratio and grandfathering of debt from bail-in) risks undermining their benefits. It is also right to pursue a broader comprehensive resolution regime that extends to investment firms. The government will need to give further consideration to the authorities' oversight of shadow banking, which the ICB's proposals will incentivise, and to the transmission of risk within the financial system through bail-in.

The Need for Special Resolution Regimes for Financial Institutions - The Case of Theeuropean Union

The global financial crisis has demonstrated weaknesses in resolution regimes for financial institutions around the globe, including in the European Union (EU). This paper considers the principles underlying resolution regimes for financial institutions, and draws out how a well-designed resolution regime can expand the toolset available for crisis management. Introducing, or in some cases expanding the scope, of these regimes is pressing to achieve more effective responses to ongoing financial sector weaknesses across the EU.

The Need for Special Resolution Regimes for Financial Institutions: The Case of theeuropean Union

The global financial crisis has demonstrated weaknesses in resolution regimes for financial institutions around the globe, including in the European Union (EU). This paper considers the principles underlying resolution regimes for financial institutions, and draws out how a well-designed resolution regime can expand the toolset available for crisis management. Introducing, or in some cases expanding the scope, of these regimes is pressing to achieve more effective responses to ongoing financial sector weaknesses across the EU.