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
Previous ArticleEuropean Council Adopts Climate Law
The Prudential Regulation Authority (PRA) published the final policy statement PS21/21 on the leverage ratio framework in the UK. PS21/21, which sets out the final policy of both the Financial Policy Committee (FPC) and PRA
The Consumer Financial Protection Bureau (CFPB) proposed to amend Regulation B to implement changes to the Equal Credit Opportunity Act (ECOA) under Section 1071 of the Dodd-Frank Act.
The Prudential Regulation Authority (PRA) decided to maintain, at the 2019 levels, the buffer rates for the Other Systemically Important Institutions (O-SII) for another year, with no new rates to be set until December 2023.
The Financial Stability Board (FSB) published a progress report on implementation of its high-level recommendations for the regulation, supervision, and oversight of global stablecoin arrangements.
In a letter to the authorized deposit taking institutions, the Australian Prudential Regulation Authority (APRA) announced an increase in the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications.
The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) are consulting on the preliminary guidance that clarifies that stablecoin arrangements should observe international standards for payment, clearing, and settlement systems.
The European Banking Authority (EBA) and the European Insurance and Occupational Pensions Authority (EIOPA) have set out their respective work priorities for 2022.
The Malta Financial Services Authority (MFSA) updated the guidelines on supervisory reporting requirements under the reporting framework 3.0, in addition to the reporting module on leverage under the common reporting (COREP) framework.
The European Commission (EC) published the Implementing Decision 2021/1753 on the equivalence of supervisory and regulatory requirements of certain third countries and territories for the purposes of the treatment of exposures, in accordance with the Capital Requirements Regulation or CRR (575/2013).
EC published the Implementing Regulation 2021/1751, which lays down implementing technical standards on uniform formats and templates for notification of determination of the impracticability of including contractual recognition of write-down and conversion powers.