FSI Paper Examines Effectiveness of Bank Resolution Frameworks
The Financial Stability Institute (FSI) of BIS published a paper that reviews institutional implementation of the principles set out in the FSB Key Attributes of Effective Resolution Regimes in 16 jurisdictions. The analysis concludes that conflicts of interest between the resolution and supervisory functions can arise irrespective of whether they are institutionally co-located or separate. A key factor in all types of arrangements is balancing operational independence for the resolution function with structures that allow it to benefit from synergies with the supervisory function.
The review shows the variation that exists in the institutional arrangements for bank resolution. While the adoption of the Key Attributes has given authorities an opportunity to review and possibly adjust their bank resolution arrangements, the principles-based nature of these standards regarding the resolution authority leaves scope for jurisdictions to integrate the resolution function within their existing institutional architecture. One of the principal considerations that emerged from discussions with authorities is how to achieve appropriate operational independence for the resolution function while enabling it to benefit from the synergies with the supervisory function. While the potential for conflicts of interest between supervision and resolution is widely recognized, there is a growing perception of the benefits of institutional arrangements that support close cooperation between the two functions. This negotiation between the two principles—operational independence and conflict management, on the one hand, and exploiting synergies on the other—is still ongoing in some authorities as new arrangements evolve and mature.
The review shows that conflicts of interest between resolution and supervisory functions could arise independently of the location of the resolution function. The co-location of the supervisory and resolution functions facilitates coordination and the resolution of conflicts through internal governance arrangements. To date, the bank resolution function in its current form is relatively new, and untested, in many jurisdictions. Therefore, effective practices in this area may still be a work in progress. Resolution authorities have not encountered significant obstacles in resolution planning and, where the arrangements were in place in earlier crises, in the conduct of bank resolution. Complex arrangements, such as hybrid models primarily resulting from historical experience, require greater coordination efforts. Resolution authorities also consider their staffing levels and legal protection as broadly adequate to exercise their functions, with the possibility of scaling-up resources in times of increased pressure.
Related Links
Keywords: International, Banking, Resolution Planning, Resolution Framework, Key Attributes, Resolution Regime, Reporting, FSI, BIS
Featured Experts
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Nicolas Degruson
Works with financial institutions, regulatory experts, business analysts, product managers, and software engineers to drive regulatory solutions across the globe.
David Fihrer
Skilled life insurance actuary; subject matter expert on IFRS 17 and source of earnings
Previous Article
EIOPA Launches Stress Test for Insurance Sector in EURelated Articles
FINMA Approves Merger of Credit Suisse and UBS
The Swiss Financial Market Supervisory Authority (FINMA) has approved the takeover of Credit Suisse by UBS.
BOE Sets Out Its Thinking on Regulatory Capital and Climate Risks
The Bank of England (BOE) published a working paper that aims to understand the climate-related disclosures of UK financial institutions.
OSFI Finalizes on Climate Risk Guideline, Issues Other Updates
The Office of the Superintendent of Financial Institutions (OSFI) is seeking comments, until May 31, 2023, on the draft guideline on culture and behavior risk, with final guideline expected by the end of 2023.
APRA Assesses Macro-Prudential Policy Settings, Issues Other Updates
The Australian Prudential Regulation Authority (APRA) published an information paper that assesses its macro-prudential policy settings aimed at promoting stability at a systemic level.
BIS Paper Examines Impact of Greenhouse Gas Emissions on Lending
BIS issued a paper that investigates the effect of the greenhouse gas, or GHG, emissions of firms on bank loans using bank–firm matched data of Japanese listed firms from 2006 to 2018.
HMT Mulls Alignment of Ring-Fencing and Resolution Regimes for Banks
The HM Treasury (HMT) is seeking evidence, until May 07, 2023, on practicalities of aligning the ring-fencing and the banking resolution regimes for banks.
MFSA Sets Out Supervisory Priorities, Issues Reporting Updates
The Malta Financial Services Authority (MFSA) outlined its supervisory priorities for 2023
German Regulators Issue Multiple Reporting Updates for Banks
Deutsche Bundesbank published the nationally deactivated validation rules for the German Commercial Code (HGB) users on the taxonomy 3.2, which became valid from December 31, 2022
BCBS Report Examines Impact of Basel III Framework for Banks
The Basel Committee on Banking Supervision (BCBS) published results of the Basel III monitoring exercise based on the June 30, 2022 data.
PRA Consults on Prudential Rules for "Simpler-Regime" Firms
Among the recent regulatory updates from UK authorities, a key development is the first-phase consultation, from the Prudential Regulation Authority (PRA), on simplifications to the prudential framework that would apply to the simpler-regime firms.
