FSB is seeking feedback from stakeholders as part of the thematic peer review on corporate debt workouts. The peer review will take stock of existing and planned out of court debt workout frameworks in FSB jurisdictions. It will examine the experience of mechanisms that have been or are being used to address corporate stress, including the role of financial sector authorities. The review will also seek to identify good practices and examples of how well out of court debt workout frameworks have worked in terms of preserving value for viable companies and how useful their debt restructurings are for resolving non-performing loans and for dealing with a large number of distressed corporates. FSB has circulated a questionnaire to its member jurisdictions to collect information in this area, with the feedback period ending on August 09, 2021. The peer review report will be published in early 2022.
The objective of the review is to support the COVID-19 response efforts by examining FSB member jurisdictions’ practices, experiences, and lessons from out of court debt workouts and the associated implications for financial stability. The review will explore how losses to the financial system and economy could be mitigated by efficient procedures for the restructuring of financial debt of corporates, in particular in an economic environment that may entail restructuring needs for a large number of companies. To this end, the review will focus on the legal and regulatory conditions (or enabling framework) that facilitate out of court debt workouts as well as elements of the legal and regulatory regime that interact with the financial system. This includes regulatory factors that affect incentives for restructuring (for example, prudential treatment of a restructured loan, rights of existing shareholders), in particular with regard to restructuring mechanisms to efficiently work out a high number of failing loans. The experience of asset management companies will be also considered in this context, but the focus will be on how they have helped to facilitate out of court debt workouts rather than on their role in addressing problem banks.
Furthermore, the review will explore the role of financial sector authorities in facilitating enabling processes and structures (for example, codes of conduct for debt workouts) for dealing with cases of corporate financial difficulty in which financial institutions have a significant exposure, especially in markets where the need for corporate restructuring has reached systemic levels. The review will cover non-financial corporates of all sizes to get a wider perspective of frameworks in place. The review will focus on out of court debt workouts for businesses organized as corporations. It will include financial institutions only insofar as they are creditors to corporates in financial distress and will not cover legal frameworks on the insolvency or resolution of financial institutions. Given the concerns about small and medium-size enterprises (SMEs) stemming from cost, effectiveness, and administrative burden considerations, a particular focus will be on specific rules and practices for debt workouts for SMEs.
Deteriorating credit quality of non-financial borrowers poses risks to the financial system; indeed, growing vulnerabilities in the non-financial corporate sector may increasingly affect banks and other financial institutions. It is therefore important to have in place efficient procedures for the restructuring or liquidation of corporates in distress. Thus, FSB is inviting feedback from financial institutions, corporates, insolvency practitioners, and other stakeholders on out of court corporate debt workouts. This could include comments on:
- Types of out of court debt workout frameworks (for example, informal workouts, enhanced workouts, and hybrid workouts) most often used in a jurisdiction and the rationale for their use
- Features of out of court debt workout frameworks that may be particularly helpful to minimize the economic and financial system damage caused by corporate defaults due to COVID-19
- The appropriate role of financial sector authorities in facilitating debt restructuring, including to incentivize the participation of various stakeholders in an out of court debt workout
- Experiences and challenges in the use of out of court debt workouts, including to manage the volume of non-performing loans in the financial system
Keywords: International, Banking, Securities, Credit Risk, COVID-19, NPLs, Out of Court Debt Workout, Debt Restructuring, Corporate Debt Workout, FSB
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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.
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The Prudential Regulation Authority (PRA) published the policy statement PS18/21, which introduces an amendment in the definition of "higher paid material risk taker" in the Remuneration Part of the PRA Rulebook.
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The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) published a report that assesses the business continuity planning activities of financial market infrastructures or FMIs.
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The Basel Committee on Banking Supervision (BCBS) is consulting on a technical amendment to the Basel Framework to reflect a new process reviewing the global systemically important bank (G-SIB) assessment methodology.