Featured Product

    IMF Paper Outlines Lessons from Management of Systemic Banking Crises

    February 11, 2020

    IMF published a policy paper that summarizes the general principles, strategies, and techniques for preparing for and managing systemic banking crises. The principles and techniques are based on the views and experience of the IMF staff and consider developments since the global financial crisis. The paper covers only two parts of the full reform agenda since the crisis—one on key elements of a legal and operational framework for crisis preparedness and the other on operational strategies and techniques to manage systemic crises if they occur.

    The paper summarizes the relevant lessons learned during the global financial crisis and other recent episodes of financial distress. Part I of the paper covers on crisis preparedness and outlines the design and operational features of a well-designed financial safety net. It discusses how staff advice on these issues has evolved, drawing from the international standards and good practices that emerged in the aftermath of the global financial crisis. Effective financial safety nets play an important role in minimizing the risk of system wide financial distress—by increasing the likelihood that failing financial institutions can be resolved without triggering financial instability. However, they cannot eliminate that risk, particularly during times of severe stress. Part II of the paper covers crisis management and discusses aspects of the policy response to a full-blown banking crisis. It details the evolution of IMF advice in light of what worked well—or less well—during the global financial crisis, reflecting the experience of IMF staff in actual crisis situations. The narrative is organized around policies for dealing with the three distinct aspects of systemic banking crisis—containment, restructuring and resolution, and dealing with distressed assets.

    Although much has been achieved since the crisis, strengthening the capacities of countries to prepare for and manage systemic banking crises remains a work in progress. Recent experience with bank failures in low-income countries reveals continuing weaknesses in the financial safety net, including the absence of options to resolve banks without resorting to public bail-outs, weak protections to small depositors, and inadequate arrangements on the provision of central bank liquidity to banks at times of stress. Reforms are underway in some countries, which is encouraging. It will require considerable political will and effort to make further progress and build capacity. IMF staff will continue to promote the adoption of financial sector standards and good international practices on the design and operation of the financial safety net in its engagement with IMF members. Staff will also continue to participate in various work streams of international standard-setting bodies, such as the FSB, to foster implementation of agreed reforms.

    Enhancing resolvability of systemic banks—at the global, regional, and domestic level—is a key priority. In addition, new resolution frameworks are yet to be fully tested in practice, particularly in a cross-border failure, and significant challenges remain in making systemic banks resolvable, including to:

    • Give cross-border effect to foreign resolution powers and removing impediments to cross-border cooperation (for example, national depositor preference)
    • Adequately resource independent resolution authorities to develop recovery and resolution planning with powers to remove impediments to resolvability, including requiring changes to group structures and business operations
    • Ensuring that sufficient (quality and quantity if) loss-absorbing capacity, or LAC, is issued from the appropriate group entities to make resolution plans feasible, including across borders, requiring close coordination between home and host jurisdictions on “internal LAC” committed to material subsidiaries in other jurisdictions.

     

    Related Link: Policy Paper

     

    Keywords: International, Banking, Systemic Risk, Research, Resolution Framework, TLAC, Crisis Management Framework, IMF

    Featured Experts
    Related Articles
    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
    News

    BCBS Consults on Disclosure of Climate Risks, Issues Other Updates

    The Basel Committee on Banking Supervision (BCBS) launched consultation on a Pillar 3 disclosure framework for climate-related financial risks, with the comment period ending on February 29, 2024.

    December 18, 2023 WebPage Regulatory News
    News

    US Government Moves to Regulate Development and Use of AI Models

    The U.S. President Joe Biden signed an Executive Order, dated October 30, 2023, to ensure safe, secure, and trustworthy development and use of artificial intelligence (AI).

    December 18, 2023 WebPage Regulatory News
    News

    MAS Launches Gprnt Digital Platform for ESG Reporting for SMEs

    The Monetary Authority of Singapore (MAS) launched an integrated digital platform, Gprnt, also known as “Greenprint.”

    November 29, 2023 WebPage Regulatory News
    RESULTS 1 - 10 OF 8949