Featured Product

    FSI Paper Examines Role of Deposit Insurance in Bank Resolution

    August 23, 2019

    The Financial Stability Institute, or FSI, of BIS published a paper that examines the role of deposit insurance schemes in the bank resolution framework. The paper takes stock of the types of alternative measures that the deposit insurance schemes may fund. These measures include purchase and assumption transactions; the transfer of deposits—and, possibly, other business—to a bridge bank; and the provision of capital and liquidity support, either to prevent the failure of a stressed bank or in the context of a resolution or insolvency procedure. The paper discusses how deposit insurance scheme support for such measures can complement bank insolvency and resolution frameworks and expand the toolbox for bank failure management.

    Deposit insurance schemes play an important role in the framework for managing bank failures. The core use of the deposit insurance scheme resources is the payout of insured deposits in the context of a bank closure and insolvency proceeding. The deposit insurance schemes may also fulfill their mandate by funding measures that, at a minimum, preserve access to insured deposits as an alternative to payout. The use of the deposit insurance scheme resources for purposes other than payout is reflected in international standards such as the International Association of Deposit Insurers (IADI) Core Principles for Effective Deposit Insurance Systems and the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions. On the basis of responses to a survey of 32 members of IADI, the paper takes stock of the types of alternative measures that deposit insurance schemes may fund.

    The survey reveals a wide range of approaches, based on variables that include the tools available under the applicable framework for bank failure management; the mandate of the deposit insurance schemes; the safeguards to protect deposit insurance scheme resources such as the operation of any financial cap on the amount that can be used for alternative measures for a single bank; and the availability of backup funding arrangements for the deposit insurance schemes. These differences in part reflect policy priorities and national institutional arrangements with the safety net. The ability to use deposit insurance scheme resources for alternative measures can complement bank insolvency and resolution frameworks and expand the options for bank failure management. However, a number of policy considerations frame choices about the use of deposit insurance scheme resources. Although these options can be helpful, they may require capacity on the part of the deposit insurance authority to assess and implement more sophisticated funding arrangements; the availability of appropriate backup funding arrangements if there is a risk that measures other than payout may involve material amounts that could exhaust the available resources of the scheme; and arrangements to deal with any moral hazard incentives for banks. Safeguards in the form of financial caps, including a “least cost” principle, and, where relevant, collateral requirements can help to counterbalance these issues at the cost of lower flexibility.

    The funding options for individual deposit insurance schemes will depend on the measures available under the legal framework for bank failure management and the role of the deposit insurance scheme in that framework. The availability of deposit insurance scheme resources to fund alternative measures is subject to conditions and safeguards. The amount the deposit insurance scheme may contribute to specific measures is generally also subject to constraints aimed at safeguarding its resources although backup funding arrangements may increase the capacity for deposit insurance scheme resources. Within these constraints, the availability of deposit insurance scheme resources to fund alternative measures can increase options for authorities in managing bank failures. This may be especially relevant when dealing with medium-size or non-systemic banks, in which deposits may be the main form of loss absorbency.

     

    Related Links

    Keywords: International, Banking, Deposit Guarantee Scheme, Deposit Insurance, Resolution Framework, Systemic Risk, BIS, FSI

    Featured Experts
    Related Articles
    News

    US Regulators Release Stress Test Scenarios for Banks

    The U.S. regulators recently released baseline and severely adverse scenarios, along with other details, for stress testing the banks in 2024. The relevant U.S. banking regulators are the Federal Reserve Bank (FED), the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC).

    February 28, 2024 WebPage Regulatory News
    News

    Asian Governments Aim for Interoperability in AI Governance Frameworks

    The regulatory landscape for artificial intelligence (AI), including the generative kind, is evolving rapidly, with governments and regulators aiming to address the challenges and opportunities presented by this transformative technology.

    February 28, 2024 WebPage Regulatory News
    News

    EBA Proposes Operational Risk Standards Under Final Basel III Package

    The European Union (EU) has been working on the final elements of Basel III standards, with endorsement of the Banking Package and the publication of the European Banking Authority (EBA) roadmap on Basel III implementation in December 2023.

    February 26, 2024 WebPage Regulatory News
    News

    EFRAG Proposes XBRL Taxonomy and Standard for Listed SMEs Under ESRS

    The European Financial Reporting Advisory Group (EFRAG), which plays a crucial role in shaping corporate reporting standards in European Union (EU), is seeking comments, until May 21, 2024, on the Exposure Draft ESRS for listed SMEs.

    February 23, 2024 WebPage Regulatory News
    News

    ECB to Expand Climate Change Work in 2024-2025

    Banking regulators worldwide are increasingly focusing on addressing, monitoring, and supervising the institutions' exposure to climate and environmental risks.

    February 23, 2024 WebPage Regulatory News
    News

    BIS Bulletin Examines Cognitive Limits of Large Language Models

    The use cases of generative AI in the banking sector are evolving fast, with many institutions adopting the technology to enhance customer service and operational efficiency.

    January 25, 2024 WebPage Regulatory News
    News

    ECB is Conducting First Cyber Risk Stress Test for Banks

    As part of the increasing regulatory focus on operational resilience, cyber risk stress testing is also becoming a crucial aspect of ensuring bank resilience in the face of cyber threats.

    January 24, 2024 WebPage Regulatory News
    News

    EBA Continues Momentum Toward Strengthening Prudential Rules for Banks

    A few years down the road from the last global financial crisis, regulators are still issuing rules and monitoring banks to ensure that they comply with the regulations.

    January 24, 2024 WebPage Regulatory News
    News

    EU and UK Agencies Issue Updates on Final Basel III Rules

    The European Commission (EC) recently issued an update informing that the European Council and the Parliament have endorsed the Banking Package implementing the final elements of Basel III standards

    December 19, 2023 WebPage Regulatory News
    News

    Industry Agency Expects Considerable Uptake for Swiss Climate Scores

    The Swiss Federal Council recently decided to further develop the Swiss Climate Scores, which it had first launched in June 2022.

    December 18, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8952