BCB Prepares Supplementary Draft Law on Bank Resolution
BCB notified that the supplementary draft law (PLP 281/2019) on banking resolution has been submitted to Congress. The bill is intended to implement international recommendations regarding more effective and modern solutions for resolving distressed financial institutions and to ensure financial stability by preserving the continuity of critical functions. The PLP 281/2019 provides for a legislation on banking resolution that is in line with the FSB Key Attributes of Effective Resolution Regimes for Financial Institutions. The PLP 281/2019 harmonizes the framework for resolution regimes by creating two regimes—the Stabilization Regime and the Compulsory Liquidation Regime.
In addition to defining the resolution authorities’ roles and competencies, the PLP 281/2019 establishes the mandatory use of equity or other instruments of firm ownership to absorb losses to ensure continuity of some critical activities for the Brazilian population and economy. The Stabilization Regime aims to mitigate the risk for a systemic crisis involving an institution or a relevant activity performed within the National Financial System, or SFN, and allows the institution or its critical functions to continue to be undertaken, provided that the shareholder rights are "overrided." The Compulsory Liquidation Regime, CLR, resolves, in an orderly manner, a non-systemic financial institution from the National Financial System. The Compulsory Liquidation Regime will be a faster process than the extra-judicial liquidation of financial institutions, which is currently provided for by Law No. 6,024/1974.
To protect the National Financial System, the PLP 281/2019 better defines the use of deposit guarantee funds and allows the creation of private resolution funds to be capitalized with resources from the National Financial System. Furthermore, the PLP 281/2019 allows the preservation of critical functions funded by private investments in the institution or the National Financial System itself. Only in cases of severe crises—and only after the use of all private resources from shareholders, subordinated creditors, and privately financed resolution funds—the PLP 281/2019 provides for the use of public funding as a last resort and the Treasury will be the first to be repaid after the recovery of the institution. In parallel, the BCB draft precludes the use of public resources to bail-out the insolvent institutions’ controllers.
Related Links
Keywords: Americas, Brazil, Banking, Stabilizing Regime, Compulsory Liquidation Regime, Systemic Risk, Resolution Framework, BCB
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Blake Coules
Across 35 years in banking, Blake has gained deep insights into the inner working of this sector. Over the last two decades, Blake has been an Operating Committee member, leading teams and executing strategies in Credit and Enterprise Risk as well as Line of Business. His focus over this time has been primarily Commercial/Corporate with particular emphasis on CRE. Blake has spent most of his career with large and mid-size banks. Blake joined Moody’s Analytics in 2021 after leading the transformation of the credit approval and reporting process at a $25 billion bank.
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
Previous Article
FINMA Identifies Key Risks in the Financial Sector in SwitzerlandRelated Articles
BIS and Central Banks Experiment with GenAI to Assess Climate Risks
A recent report from the Bank for International Settlements (BIS) Innovation Hub details Project Gaia, a collaboration between the BIS Innovation Hub Eurosystem Center and certain central banks in Europe
Nearly 25% G-SIBs Commit to Adopting TNFD Nature-Related Disclosures
Nature-related risks are increasing in severity and frequency, affecting businesses, capital providers, financial systems, and economies.
Singapore to Mandate Climate Disclosures from FY2025
Singapore recently took a significant step toward turning climate ambition into action, with the introduction of mandatory climate-related disclosures for listed and large non-listed companies
SEC Finalizes Climate-Related Disclosures Rule
The U.S. Securities and Exchange Commission (SEC) has finalized the long-awaited rule that mandates climate-related disclosures for domestic and foreign publicly listed companies in the U.S.
EBA Proposes Standards Related to Standardized Credit Risk Approach
The European Banking Authority (EBA) has been taking significant steps toward implementing the Basel III framework and strengthening the regulatory framework for credit institutions in the EU
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).
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.
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.
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.
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.
