BCB Prepares Supplementary Draft Law on Bank Resolution
BCB notified that the supplementary draft law (PLP 281/2019) on banking resolution has been submitted to Congress. The bill is intended to implement international recommendations regarding more effective and modern solutions for resolving distressed financial institutions and to ensure financial stability by preserving the continuity of critical functions. The PLP 281/2019 provides for a legislation on banking resolution that is in line with the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions. The PLP 281/2019 harmonizes the framework for resolution regimes by creating two regimes—the Stabilization Regime and the Compulsory Liquidation Regime.
In addition to defining the resolution authorities’ roles and competencies, the PLP 281/2019 establishes the mandatory use of equity or other instruments of firm ownership to absorb losses to ensure continuity of some critical activities for the Brazilian population and economy. The Stabilization Regime aims to mitigate the risk for a systemic crisis involving an institution or a relevant activity performed within the National Financial System, or SFN, and allows the institution or its critical functions to continue to be undertaken, provided that the shareholder rights are "overrided." The Compulsory Liquidation Regime, CLR, resolves, in an orderly manner, a non-systemic financial institution from the National Financial System. The Compulsory Liquidation Regime will be a faster process than the extra-judicial liquidation of financial institutions, which is currently provided for by Law No. 6,024/1974.
To protect the National Financial System, the PLP 281/2019 better defines the use of deposit guarantee funds and allows the creation of private resolution funds to be capitalized with resources from the National Financial System. Furthermore, the PLP 281/2019 allows the preservation of critical functions funded by private investments in the institution or the National Financial System itself. Only in cases of severe crises—and only after the use of all private resources from shareholders, subordinated creditors, and privately financed resolution funds—the PLP 281/2019 provides for the use of public funding as a last resort and the Treasury will be the first to be repaid after the recovery of the institution. In parallel, the BCB draft precludes the use of public resources to bail-out the insolvent institutions’ controllers.
Related Links
Keywords: Americas, Brazil, Banking, Stabilizing Regime, Compulsory Liquidation Regime, Systemic Risk, Resolution Framework, BCB
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Patrycja Oleksza
Applies proficiency and knowledge to regulatory capital and reporting analysis and coordinates business and product strategies in the banking technology area
Previous Article
Dubai FSA to Launch Cyber Threat Intelligence PlatformRelated Articles
EBA Guide to Monitor Threshold for Intermediate Parent Undertakings
The European Banking Authority (EBA) published the final guidelines on the monitoring of the threshold and other procedural aspects on the establishment of intermediate parent undertakings in European Union (EU), as laid down in the Capital Requirements Directive (CRD).
PRA Finalizes Approach to Supervision of International Banks
In a recent Market Notice, the Bank of England (BoE) confirmed that green gilts will have equivalent eligibility to existing gilts in its market operations.
FCA Issues PS21/9 on Implementation of Investment Firms Regime
The Financial Conduct Authority (FCA) published the policy statement PS21/9 on implementation of the Investment Firms Prudential Regime.
EBA Proposes Regulatory Standards to Identify Shadow Banking Entities
The European Banking Authority (EBA) proposed regulatory technical standards that set out criteria for identifying shadow banking entities for the purpose of reporting large exposures.
IOSCO Proposes Recommendations on ESG Ratings and Data Providers
The Board of the International Organization of Securities Commissions (IOSCO) proposed a set of recommendations on the environmental, social, and governance (ESG) ratings and data providers.
ESMA Group Issues Recommendations on RFR Switch in Interdealer Market
The European Securities and Markets Authority (ESMA) published recommendations from the Working Group on Euro Risk-Free Rates (RFR) on the switch to risk-free rates in the interdealer market.
EC to Defer Application of SFDR Standards Till July 2022
The European Commission (EC) announced plans to defer the application of 13 regulatory technical standards under the Sustainable Finance Disclosure Regulation (2019/2088) by six months, from January 01, 2022 to July 01, 2022.
EIOPA Consults on Reporting and Disclosures Under Solvency II
The European Insurance and Occupational Pensions Authority (EIOPA) proposed to amend the supervisory statement on supervision of run-off undertakings that are subject to Solvency II regulation.
BoE Consults on Approach to Setting MREL, Publishes Bail-In Guidance
The Bank of England (BoE) published a consultation paper on approach to setting minimum requirement for own funds and eligible liabilities (MREL), an operational guide on executing bail-in, and a statement from the Deputy Governor Dave Ramsden.
EBA Seeks Views on Proportionality Assessment Methodology
The European Banking Authority (EBA) is seeking preliminary input on standardization of the proportionality assessment methodology for credit institutions and investment firms.
