Featured Product

    IMF Paper Outlines Lessons from Management of Systemic Banking Crises

    February 11, 2020

    IMF published a policy paper that summarizes the general principles, strategies, and techniques for preparing for and managing systemic banking crises. The principles and techniques are based on the views and experience of the IMF staff and consider developments since the global financial crisis. The paper covers only two parts of the full reform agenda since the crisis—one on key elements of a legal and operational framework for crisis preparedness and the other on operational strategies and techniques to manage systemic crises if they occur.

    The paper summarizes the relevant lessons learned during the global financial crisis and other recent episodes of financial distress. Part I of the paper covers on crisis preparedness and outlines the design and operational features of a well-designed financial safety net. It discusses how staff advice on these issues has evolved, drawing from the international standards and good practices that emerged in the aftermath of the global financial crisis. Effective financial safety nets play an important role in minimizing the risk of system wide financial distress—by increasing the likelihood that failing financial institutions can be resolved without triggering financial instability. However, they cannot eliminate that risk, particularly during times of severe stress. Part II of the paper covers crisis management and discusses aspects of the policy response to a full-blown banking crisis. It details the evolution of IMF advice in light of what worked well—or less well—during the global financial crisis, reflecting the experience of IMF staff in actual crisis situations. The narrative is organized around policies for dealing with the three distinct aspects of systemic banking crisis—containment, restructuring and resolution, and dealing with distressed assets.

    Although much has been achieved since the crisis, strengthening the capacities of countries to prepare for and manage systemic banking crises remains a work in progress. Recent experience with bank failures in low-income countries reveals continuing weaknesses in the financial safety net, including the absence of options to resolve banks without resorting to public bail-outs, weak protections to small depositors, and inadequate arrangements on the provision of central bank liquidity to banks at times of stress. Reforms are underway in some countries, which is encouraging. It will require considerable political will and effort to make further progress and build capacity. IMF staff will continue to promote the adoption of financial sector standards and good international practices on the design and operation of the financial safety net in its engagement with IMF members. Staff will also continue to participate in various work streams of international standard-setting bodies, such as the FSB, to foster implementation of agreed reforms.

    Enhancing resolvability of systemic banks—at the global, regional, and domestic level—is a key priority. In addition, new resolution frameworks are yet to be fully tested in practice, particularly in a cross-border failure, and significant challenges remain in making systemic banks resolvable, including to:

    • Give cross-border effect to foreign resolution powers and removing impediments to cross-border cooperation (for example, national depositor preference)
    • Adequately resource independent resolution authorities to develop recovery and resolution planning with powers to remove impediments to resolvability, including requiring changes to group structures and business operations
    • Ensuring that sufficient (quality and quantity if) loss-absorbing capacity, or LAC, is issued from the appropriate group entities to make resolution plans feasible, including across borders, requiring close coordination between home and host jurisdictions on “internal LAC” committed to material subsidiaries in other jurisdictions.

     

    Related Link: Policy Paper

     

    Keywords: International, Banking, Systemic Risk, Research, Resolution Framework, TLAC, Crisis Management Framework, IMF

    Featured Experts
    Related Articles
    News

    EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.10

    EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.

    July 10, 2020 WebPage Regulatory News
    News

    FASB Proposes to Delay Implementation of Insurance Contracts Standard

    FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).

    July 09, 2020 WebPage Regulatory News
    News

    APRA Updates Regulatory Approach to Loan Deferrals Amid COVID Crisis

    APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.

    July 09, 2020 WebPage Regulatory News
    News

    BCBS and FSB Set Out Recommendations for Benchmark Transition

    BCBS and FSB published a report on supervisory issues associated with benchmark transition.

    July 09, 2020 WebPage Regulatory News
    News

    IAIS Sets Out Recommendations for Benchmark Transition for Insurers

    IAIS published a report on supervisory issues associated with benchmark transition from an insurance perspective.

    July 09, 2020 WebPage Regulatory News
    News

    ESMA Updates Reporting Manual on European Single Electronic Format

    ESMA updated the reporting manual on the European Single Electronic Format (ESEF).

    July 09, 2020 WebPage Regulatory News
    News

    EBA Calls on Resolution Authorities to Consider Impact of COVID Crisis

    EBA published a statement on resolution planning in light of the COVID-19 pandemic.

    July 09, 2020 WebPage Regulatory News
    News

    ECB Guideline on Materiality Threshold for Credit Obligations Past Due

    ECB published a guideline (2020/97), in the Official Journal of European Union, on the definition of materiality threshold for credit obligations past due for less significant institutions.

    July 08, 2020 WebPage Regulatory News
    News

    FED Temporarily Revises FR Y-14 With Respect to PPP and CARES Act

    FED temporarily revised the capital assessments and stress testing reports (FR Y-14A/Q/M) to implement the changes in response to the COVID-19 pandemic.

    July 08, 2020 WebPage Regulatory News
    News

    BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework

    BCBS Finalizes Revisions to Credit Valuation Adjustment Risk Framework

    July 08, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5458