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

    OSFI Outlines Prudential Policy Priorities for Coming Months

    OSFI has set out the near-term priorities for federally regulated financial institutions and federally regulated private pension plans for the coming months until March 31, 2022.

    May 06, 2021 WebPage Regulatory News
    News

    BIS Announces TechSprint on Innovative Green Finance Solutions

    Under the Italian G20 Presidency, BIS Innovation Hub and the Italian central bank BDI launched the second edition of the G20 TechSprint on the lookout for innovative solutions to resolve operational problems in green and sustainable finance.

    May 06, 2021 WebPage Regulatory News
    News

    EBA Proposed Regulatory Standards for Central Database on AML/CFT

    EBA proposed the regulatory technical standards on a central database on anti-money laundering and countering the financing of terrorism (AML/CFT) in EU.

    May 06, 2021 WebPage Regulatory News
    News

    ECB Responds to EC Consultation on Crisis Management Framework

    ECB published its response to the targeted EC consultation on the review of the bank crisis management and deposit insurance framework in EU.

    May 06, 2021 WebPage Regulatory News
    News

    ACPR Publishes Version 1.0.0 of RUBA Taxonomy

    ACPR published Version 1.0.0 of the RUBA taxonomy, which will come into force from the decree of January 31, 2022.

    May 06, 2021 WebPage Regulatory News
    News

    BCBS, CPMI, and IOSCO to Survey Market Participants on Margin Calls

    BCBS, CPMI, and IOSCO (the Committees) are inviting entities that participate in market infrastructures and securities markets through an intermediary as well as non-bank intermediaries to complete voluntary surveys on the use of margin calls.

    May 05, 2021 WebPage Regulatory News
    News

    ECB Amends Decision on TLTRO III

    ECB published Decision 2021/752 to amend Decision 2019/1311 on the third series of targeted longer-term refinancing operations or TLTRO III.

    May 05, 2021 WebPage Regulatory News
    News

    Central Bank of Ireland Issues Draft Template for AnaCredit Reporting

    The Central Bank of Ireland published Version 2.7 of the draft credit data template and rules for monthly AnaCredit reporting by banks.

    May 05, 2021 WebPage Regulatory News
    News

    OSFI Consults on Revisions to BCAR and Leverage Requirements Returns

    OSFI proposed revisions to the Basel Capital Adequacy Reporting (BCAR) and leverage requirements returns for the 2023 reporting, with the comment period ending on July 09, 2021.

    May 04, 2021 WebPage Regulatory News
    News

    EBA Seeks Views on Revisions to Nonperforming Loan Data Templates

    EBA published a discussion paper on review of the standardized nonperforming loans (NPL) transaction data templates, along with the proposed revised NPL data templates.

    May 04, 2021 WebPage Regulatory News
    RESULTS 1 - 10 OF 6936