FSB KEY ATTRIBUTES FOR EFFECTIVE
RESOLUTION REGIMES: IMPLICATIONS
FOR DEPOSIT INSURERS
David Walker: Canada Deposit Insurance Corporation
Role of Deposit Insurance in Bank Resolution
Framework – Lessons from the Financial Crisis
November 13-16, 2011: Jodhpur, India
Presentation outline
1) IADI and the FSB Resolution Steering Group:
background
2) Key Attributes for Effective Resolution Regimes


Main areas impacting deposit insurers
Core Principles and the Key Attributes
3) Conclusion and next steps
FSB Resolution Steering Group
a) Created in 2010 to oversee resolution-related
work
b) Coordinates program to set out key attributes for
resolution regimes, avoid losses to taxpayers, and
protect vital economic functions.
c) IADI joined as a member in early-2011
•
•
IADI representative on Steering Group
Sub-group of Guidance Group established to
provide comments and input
Key Attributes of Effective Resolution
Regimes for Financial Institutions
Purpose of ‘Key Attributes’:
1) Set out the core elements that the FSB considers to be
necessary for an effective resolution regime
2) Allow authorities to manage the failure of large, complex and
internationally active financial institutions in a way that:
a) minimises systemic disruption
b) avoids recourse to public funds that expose taxpayers to the risk
of loss
Essential Features of Key Attributes
1) Scope
2) Resolution authority and powers
3) Set-off, netting, collateralization, segregation of client assets,
Safeguards
4) Funding of firms in resolution
7) Legal framework conditions for cross-border cooperation
8) Crisis Management Groups (CMGs)
9) Institution-specific cross-border cooperation agreements
10) Recovery and resolution planning
11) Resolvability assessments
12) Access to information and information sharing
13) Legal framework conditions for cross-border cooperation
Main areas directly impacting deposit
insurance systems
1) “…[Resolution regimes should] protect the interests of retail
customers, in coordination with the relevant schemes and
arrangements for the protection of depositors, insurance
policy holders and retail investors where applicable…”
2) “Establish a temporary bridge institution to take over and
continue operating certain critical functions and viable
operations of a failed firm…”
Main areas directly impacting deposit
insurance systems
3)
“…Effect the closure and orderly wind-down (liquidation) of the
whole or part of a failing firm with timely payout or transfer of
insured deposits and prompt (for example, within seven days)
access to transaction accounts and to segregated client
funds)…”
4)
“…The legal framework governing set-off rights, contractual
netting and collateralisation agreements and the segregation
of client assets should be clear, transparent and enforceable
during a crisis or resolution of firms, and should not hamper
the effective implementation of resolution measures…”
Main areas directly impacting deposit
insurance systems
5) “…Jurisdictions should have in place privately-financed
deposit insurance or resolution funds, or a funding
mechanism for ex post recovery from the industry of
the costs of providing temporary financing to facilitate
the resolution of the firm…”
6) “…The statutory mandate of a resolution authority
should empower and strongly encourage the authority
wherever possible to act to achieve a cooperative
solution with foreign resolution authorities…”
Main areas directly impacting deposit
insurance systems
7) “…Carry out bail-in within resolution as a means to
achieve or help achieve continuity of essential
functions either:
I.
II.
by recapitalising the entity hitherto providing these
functions that is no longer viable, or, alternatively
by capitalising a newly established entity or bridge
institution to which these functions have been
transferred following closure of the non-viable firm (the
residual business of which would then be wound up and
the firm liquidated)
Supporting guidance
Annexes provide more technical guidance in
implementing the Key Attributes with respect to:
1) Essential elements of institution-specific cooperation
agreements (Annex I)
― Deposit insurers need to be “at the table”
2) Resolvability assessments and Recovery and resolution
plans (Annex III)
― Critical information for deposit insurers
3) Temporary stay on early termination rights (Annex IV)
BCBS-IADI Core Principles & Key Attributes
• Principle 11 - Funding
– Stresses industry as source of funding
– Need for wide range of ex-ante or ex-post tools
• Principle 15 – Early detection and timely intervention and resolution
– Deposit insurer should be part of a framework within the financial
system safety net that provides for the early detection and timely
intervention and resolution of troubled banks
• Principle 16 – Effective resolution processes
– Reimburse depositors promptly and minimise resolution costs and
disruption of markets…
– Deposit insurer or other relevant financial system safety-net participant
should have the authority to establish a bridge institution…
IADI Core Principles & Failure Resolution
• Principle 17 – Reimbursing depositors
– Give depositors prompt access to their insured
funds
– Deposit insurer should be notified or informed
sufficiently in advance…and be provided with
access to depositor information in advance
Conclusions and Next Steps
• FSB work on resolution critical for IADI and deposit
insurers
• Stresses need for deposit insurers to be well connected
to all aspects of the resolution framework
– Information, tools, contingency planning etc
• IADI working on updating its own guidance on
resolution for 2012
• IADI, FSB and other IFCs working together to ensure
future guidance is well coordinated