Featured Product

    FSI Reports Findings of Crisis Simulation Exercise in Latin America

    October 18, 2021

    The Financial Stability Institute (FSI) of the Bank for International Settlement (BIS) published a report presenting findings of the March 2021 cross-border crisis simulation exercise aimed to test financial crisis management arrangements. The exercise involved 11 central banks, supervisory authorities, and deposit insurers from Argentina, Brazil, Chile, Colombia, Paraguay, and Uruguay in an invented scenario based on the failure of a fictional regionally systemic cross-border banking group. The report presents general findings and recommendations on crisis management tools, recovery and resolution planning, liquidity and resolution funding, domestic decision-making procedures, and cross-border cooperation and information-sharing.

    The crisis simulation exercise was intended to enable participating authorities to practice and test the existing crisis management and cooperation frameworks. The simulation was based on a fictional scenario, designed to trigger discussion and decision-making within each country and across borders. The scenario design introduced a significant degree of complexity and uncertainty, including gaps in information. The setup also aimed to foster a collaborative environment in which participants could share experiences and lessons learned. The findings of the exercise covered the tools and procedures under national frameworks and the functioning of domestic and cross-border cooperation arrangements. Participants managed the simulated crisis well, performing the necessary analysis, developing strategies, and preparing and implementing decisions while fostering a constructive exchange among participating authorities. Nevertheless, the exercise revealed certain challenges in the development of solutions within existing funding restrictions that involve burden-sharing between domestic sources and across borders. 

    The analysis indicates that a crisis management protocol with detailed guidance on early intervention tools can facilitate decision-making. A playbook of possible actions organized in accordance with crisis severity would provide authorities with guidance about use of the crisis toolkit. Most authorities had procedures to follow once resolution was imminent. However, identifying actions for a given crisis severity in advance, combined with supervisory judgment, may allow authorities to place ailing institutions on a spectrum of increasing stress and to respond appropriately at each stage. Such crisis management protocol could include the following supervisory actions:

    • Interaction with supervised entities. During business as usual, supervisors typically interact with banks in accordance with a risk-based and procedurally oriented protocol that defines the scope and frequency of meetings, data deliveries and on- and off-site examinations following a schedule set on a yearly basis. As stress increases, such schedule may no longer be adequate since the intensity of interactions may need to be stepped up significantly. A protocol can be helpful to structure such interaction for authorities and banks. Based on qualitative triggers, this could guide an increase in the scope and frequency of information and data requirements, increased interactions with senior management, and the use of “moral suasion” to encourage corrective action by a bank. Where deemed meaningful, quantitative triggers can also help guide action tailored to the appropriate crisis severity point.
    • Response to activation of a recovery plan. Typical recovery options include strengthening the bank’s capital base through equity injections by existing or new shareholders, disposal of business lines or assets, and mobilization of collateral. As most of these actions may have side effects, supervisors’ protocols should also consider whether specific recovery options may have implications for the preferred resolution strategy for the bank(s). Furthermore, supervisors need to be clear about the timing of a bank’s recovery measures. For example, action to raise additional capital might fail if taken too late as the crisis intensifies.
    • Assessment of situation of a bank. This could include, for example, measures such as asset quality reviews, stress tests or on- and off-site inspections, which might be used to challenge a bank’s assessment of its recovery measures, remove uncertainties in the balance sheet, and/or protect or restore market confidence.

     

    Related Links

    Keywords: International, Banking, Latin America, Crisis Simulation Exercise, Resolution Planning, Cross-Border Framework, Resolution Framework, BIS 

    Related Articles
    News

    EBA Clarifies Use of COVID-19-Impacted Data for IRB Credit Risk Models

    The European Banking Authority (EBA) published four draft principles to support supervisory efforts in assessing the representativeness of COVID-19-impacted data for banks using the internal ratings based (IRB) credit risk models.

    June 21, 2022 WebPage Regulatory News
    News

    BIS Hub Updates Work Program for 2022, Announces New Projects

    The Bank for International Settlements (BIS) Innovation Hub updated its work program, announcing a set of projects across various centers.

    June 17, 2022 WebPage Regulatory News
    News

    US Senate Members Seek Details on SEC Proposed Climate Disclosure Rule

    Certain members of the U.S. Senate Committee on Banking, Housing, and Urban Affairs issued a letter to the Securities and Exchange Commission (SEC)

    June 16, 2022 WebPage Regulatory News
    News

    EIOPA Consults on Review of Securitization Framework in Solvency II

    The European Insurance and Occupational Pensions Authority (EIOPA) published a consultation paper on the advice on the review of the securitization prudential framework in Solvency II.

    June 16, 2022 WebPage Regulatory News
    News

    UK Authorities Issue Regulatory and Reporting Updates for Banks

    The Prudential Regulation Authority (PRA) issued a statement on PRA buffer adjustment while the Bank of England (BoE) published a notice on the statistical reporting requirements for banks.

    June 15, 2022 WebPage Regulatory News
    News

    BaFin Consults on Resolvability Requirements for Resolution Planning

    The Federal Financial Supervisory Authority of Germany (BaFin) proposed to amend the “Capital Investment Conduct And Organization Ordinance” and issued a draft circular on the minimum resolvability requirements for resolution planning.

    June 10, 2022 WebPage Regulatory News
    News

    EBA Consults on Certain Standards and Guidelines Under CRR and BRRD

    The European Banking Authority (EBA) proposed guidelines, for the resolution authorities, on the publication of the write-down and conversion and bail-in exchange mechanic, with the comment period ending on September 07, 2022.

    June 08, 2022 WebPage Regulatory News
    News

    OJK Publishes Regulatory Updates for Financial Sector Entities

    The Financial Services Authority of Indonesia (OJK) is strengthening cooperation with the Australian Prudential Regulation Authority (APRA) and the Japanese Financial Services Agency (JFSA)

    June 03, 2022 WebPage Regulatory News
    News

    EU Publishes Rules on DLT and Data Governance

    The European Parliament and the Council published Regulation 2022/868 on European data governance (Data Governance Act).

    June 03, 2022 WebPage Regulatory News
    News

    EBA Publishes Phase 2 of Reporting Framework 3.2

    The European Banking Authority (EBA) published phase 2 of its reporting framework 3.2. The technical package supports the implementation of the updated reporting framework by providing standard specifications

    June 03, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8267