Fernando Restoy, the Chair of the Financial Stability Institute (FSI) of BIS, spoke at the FSI-IADI conference on crisis management, resolution, and deposit insurance. He highlighted that FSB reviews show an uneven and incomplete implementation of the FSB-issued Key Attributes of Effective Resolution Regimes. In most FSB jurisdictions, resolution planning to date has largely concentrated on global and domestic systemic banks. However, the design of effective regimes for managing smaller bank failures is also important and gaining increasing attention. Such strengthening of the crisis management frameworks might also benefit the emerging market economies where the nature of the local financial system does not support the smooth application of international standards designed for large, complex institutions.
Mr. Restoy point out that it is unclear that bail-in is an appropriate tool for smaller banks with little experience of tapping capital markets in the way that would be necessary to issue sufficient amounts of bail-in-able liabilities. Such retail-focused banks are mainly funded by capital and deposits and may not easily satisfy, within their current business models, the loss-absorbing capacity requirements that would be required for resolution. Additionally, in many jurisdictions, smaller banks that do not meet thresholds for the use of special resolution powers are subject to an ordinary corporate insolvency regime. This may not provide suitable tools for dealing with the public interest considerations that may arise in the insolvency of any bank, irrespective of whether it is systemic.
He explained that deposit insurance is a fundamental element of an effective bank crisis management framework. In its most basic form, depositor protection contributes to financial stability by reducing the risk of depositor runs. However, where the mandate allows the funds to be used for purposes other than payout, this can support alternatives to liquidation for banks that do not meet the threshold conditions for the use of resolution powers. He highlighted the role of deposit insurance in bank failure management, as discussed in a recently published FSI Insights paper. The paper shows a wide range of approaches to the use of deposit insurance funds to support measures within resolution or insolvency that maintain access to insured deposits, or to prevent the failure of a member bank. The ability of deposit insurers to fund alternative measures can increase options for managing bank failures. This may be especially relevant for medium-size or non-systemic banks, in which deposits may be the main form of loss absorbency.
The FSI Chair added that these considerations are gaining prominence in the policy arena. In EU, a promising debate is gaining momentum on the eventual creation of an FDIC-like authority backed by a harmonized insolvency regime for banks that do not meet the thresholds for resolution. He concluded that improvements to bank insolvency regimes along the lines suggested may help strengthen crisis management frameworks in emerging market economies, where the nature of the local financial system does not support the smooth application of international standards designed for large, complex institutions.
Keywords: International, Banking, Deposit Insurance, G-SIBs, Small Banks, Resolution Planning, Crisis Management Framework, BIS, FSI
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying the criteria to identify shadow banking entities for the purposes of reporting large exposures.
The European Commission (EC) published the Delegated Regulation 2022/786 with regard to the liquidity coverage requirements for credit institutions under the Capital Requirements Regulation (CRR).
The Office of the Superintendent of Financial Institutions (OSFI) published the strategic plan for 2022-2025 and the departmental plan for 2022-23.
The European Banking Authority (EBA) is consulting, until August 31, 2022, on the draft implementing technical standards specifying requirements for the information that sellers of non-performing loans (NPLs) shall provide to prospective buyers.
The European Council and the Parliament reached an agreement on the revised Directive on security of network and information systems (NIS2 Directive).
The European Banking Authority (EBA) published the final draft regulatory technical standards specifying information that crowdfunding service providers shall provide to investors on the calculation of credit scores and prices of crowdfunding offers.
The European Council published a draft Commission Delegated Regulation to amend the regulatory technical standards on specification of the calculation of specific and general credit risk adjustments.
The European Securities and Markets Authority (ESMA) published a paper that examines the systemic risk posed by increasing use of cloud services, along with the potential policy options to mitigate this risk.
The Monetary Authority of Singapore (MAS) published amendments to Notice 635, which sets out requirements that a bank in Singapore has to comply with when granting an unsecured non-card credit facility to individuals.
The European Commission (EC) published a public consultation on the review of revised payment services directive (PSD2) and open finance.