BANK INTERVENTION
and
RESOLUTION:
Part 1
United States Department of the Treasury
Office of Technical Assistance
Banking & Financial Services
Program
• Introduction
• Advance Preparation
• Intervention
• Resolution
• Immediate Actions at Intervention
• Functional Areas – Checklists
• Conclusion
Introduction
• Problem bank resolution is a
challenge in many countries
worldwide and comprises two
processes:
1. Intervention
2. Resolution
Bank Intervention
• The process of actually securing and
inventorying a bank’s assets and
preparing a final set of financial
statements
Bank Intervention
3 situations for Bank Intervention:
1. To close a bank and immediately liquidate or do
a P&A transaction
2. To take control of a bank and appoint a Special
Administrator
3. To resolve a bank in Special Administration
Bank Intervention and Resolution
• Non-linear actions
• Advance preparation should be concurrent
and coordinated.
• Both converge at intervention
Bank Resolution
• The decisive action to solve the
problems of the bank; by private
solutions (e.g. recapitalization, sale of
bank shares, merger, etc.), assisted
transaction (e.g., P&A transaction), or
liquidated payout
Problem Bank Resolution
• Two major regulatory players:
1.Supervisory authority (NBM)
2.Deposit Guarantee Fund (DGF)
Problem Bank Resolution
• The supervisory authority should:
• Have an effective licensing or chartering
regime
• Conduct regular and thorough
examinations of individual banks
• Have a problem bank process that includes
early detection, timely intervention, and
resolution
Deposit Insurance Objectives
• Protect small depositors
• Promote financial stability by making
prompt reimbursement to insured
depositors in the event of a bank failure
Effective Legal Framework
• Highly desirable to have a special bank
resolution regime (SRR)
• At a minimum, the SRR provides for a level of
judicial review such that the bank supervisor’s
decisions cannot be reversed—any successful
appeals limited to monetary damages
Legal Framework Nexus
with DGF Objectives
• Promote financial stability by making prompt
reimbursement to insured depositors in the
event of a bank failure.
• If DGF must wait to reimburse insured
depositors while bankruptcy court appeal
process runs its course, it’s impossible to meet
this objective
Legal Framework Nexus
with DGF Objectives
• With SRR (and with advance preparation),
DGF can make insured depositor
reimbursement virtually immediately—either
directly or via a P&A transaction
Bank Resolution
• Problem bank resolution is broadly
characterized in three categories:
• Private solutions (mergers,
recapitalization, sale, etc.)
• Assisted transactions (P&A
transactions)
• Liquidation
Private solutions
• Do nothing (forbearance)
• Arrange mergers, recapitalization,
sale, etc.)
• Perhaps during Administration
Assisted transactions
• Purchase and Assumption (P&A)
transactions
• Insured or all deposits and certain assets
• Transferred to stronger (assuming) bank
Assisted transactions
• Bridge bank
• All or part of bank’s business
• Owned and operated temporarily by
government
Liquidation
• Only insured deposits are paid
• Additional recoveries to uninsured
depositors and other creditors derived from
the liquidation of assets
• NBR responsible for management and
disposition of all closed bank assets and
has authority independent of the court
system
Bank Resolution
Preferred failing bank resolution methods are
those that help prevent adverse economic
results. Their goals are to:
• Preserve franchise values
• Maximize private ownership of assets
• Minimize government ownership of assets
• Preserve (or help create) competitive markets
P&A
• Standardized contract setting forth
the conditions of a bank resolution to
all interested parties
P&A
• Financially healthier bank will
purchase certain “good” assets and
assume insured deposit liabilities
P&A
• Can be accomplished quickly (usually over
a weekend)
• Potential to maintain banking services in
under-served communities.
P&A
Using assets in a P&A to fund deposits has
two added benefits:
1. keeps assets in the private sector, and,
2. reduces the financial outlay that a DIA
must provide to repay insured deposits
Primary Goals of Bank
Intervention
• A bank intervention is a process driven
function consisting of two primary areas:
• Secure, Control and Inventory
• Reconcile and Balance
Bank Intervention
• Advance Preparation for Intervention
• Immediate Actions at Intervention
• Function Areas Checklists
Bank Intervention
• Intervention is necessary
whenever the Supervisory
Authority appoints a Special
Administrator or Receiver for a
problem bank
Special Administration
•
Two alternatives to guide the extent of
intervention activities in case of Special
Administration:
1. Where existing owners and management are
cooperative in trying to preserve value and
rehabilitate the bank, and
2. Where a bank’s owners and management are
uncooperative and opposed to any
intervention
Cooperative Management:
• The Authorities may be comfortable with
the quality of the bank’s staff, operations
and controls and not require a full-scope
Intervention.
Uncooperative Management:
• The Authorities should fully incorporate
appropriate Bank Intervention procedures
in order to prevent asset stripping,
destruction of records, etc., and any
consequent potential adverse impact on
public confidence.
Bank Intervention
• The intervention team must be
prepared for a large number of
customers who want their
deposits.
Bank Intervention and
Resolution
Advance Preparation
• Both bank intervention and resolution
advance preparation should be conducted
concurrently.
KEY ISSUES AND CONCERNS
• Specific information about the bank is
also vital
• Most recent balance sheet
• Most recent reports of examination and audit
reports
• Information on parties who have contributed to
the failure of the bank
• Estimates of insured and uninsured deposits
• Locations of branches and other facilities
• Information on large borrowers and depositors
KEY ISSUES AND CONCERNS
• The more information about the bank that is
available, the easier and quicker the closing
will be.
• Conversely, inadequate information can lead
to a difficult and lengthy closing process and
delay the insured deposit payment
Preparedness
• NBM and DGF should be working to be prepared for
both types of resolution:
• Policies and Procedures written for all areas of
operation
• Training programs based on policies and
procedures
• Staff should be hired and trained ahead of time
• Delegations of authority and decision making
system should be in place with appropriate training
Preparedness
• Clear lines of communication and cooperation should
be worked out between NBM and DGF before bank is
closed
• Sharing of all required information on a timely basis
• Early identification of failing banks and which
resolution method will be used
• Closing assistance of NBM and DGF personnel
when necessary
• Projected schedule of interventions into failing
banks
Bank Intervention Team
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Special Administrator (or)
Receiver
Bank Intervention Manager
Accounting Team
Asset Team
Branch Operations Team
Deposit Operations Team
Facilities and Security Team
Information Technology Team
Legal Team:
Personnel Team
Team Responsibility
Special Administrator
• Responsible for conserving the assets and
liabilities, preparing a final resolution plan
and winding up all affairs of the Special
Administration.
• Handles all contacts with the Media after
the Intervention period
• Has Power of Attorney to execute
documents on behalf of the Special
Administration.
Team Responsibility
Receiver
• Responsible for liquidating the assets and
liabilities and winding up all affairs of the
Receivership
• Handles all contacts with the Media after the
Intervention period
• Has Power of Attorney to execute documents
on behalf of the Receivership.
Team Responsibility
Bank Intervention Manager
• Plans, manages and coordinates all activities
relating to the intervention.
• Manages the Intervention Team including
release dates
• Acts as the primary contact for the Assuming
Bank and failed bank employees.
Team Responsibility
Accounting Team
• Closes out the books of the failed bank.
• Reconciles general ledger accounts and
compiles an adjusted final balance sheet for
the failed bank
Team Responsibility
Asset Team
• Inventories, segregates and secures pooled
notes, files and collateral
• Determines, based on the Agreement, the
split of assets between the Assuming Bank
and the Receiver.
Team Responsibility
Asset Team (cont)
• Begins disposal of retained other real estate
(ORE), vehicles, and Other Assets
• Reviews assets retained by Receiver,
assembles packages, and implements
procedures to market and sell the assets, via
a sealed bid process, to interested investors
Team Responsibility
Branch Operations Team
• Control branch premises and operations.
• Take control of the cash and any other
valuable documents (notes, negotiable
collateral, safekeeping items and other
negotiable instruments) at these branches.
• Coordinate branch operations with functional
areas, including facilities management,
personnel, lending, teller, and deposit
functions
Team Responsibility
Deposit Operations Team
• Responsible for the repayment of insured
deposits.
• Notifies and meets with uninsured depositors.
• Completes determinations of insurance and
creditor claims.
• Determines and notifies the general creditors
that the bank has failed and communicates
the claims filing procedures (time period,
etc.).
Team Responsibility
Facilities and Security Team
• Responsible for financial and physical
maintenance of office properties and other fixed
assets.
• Arrange and maintain work stations for all
employees (locate and provide additional work
space if needed)
Team Responsibility
Facilities and Security Team (cont)
• Arrange for delivery of copiers, fax machines,
and printers as needed
• Place moveable assets, such as vehicles,
furniture, fixtures, and equipment under control
and immediately inventory (from largest to
smallest value)
Team Responsibility
Facilities and Security Team (cont.)
• To safeguard the assets of the bank and
safety of employees by preventing:
• Entry by unauthorized persons;
• Vandalism of property, including files and
records
• Theft of bank property.
Team Responsibility
Information Technology Team
• Coordinates and communicates with the data
processing servicer, whether in-house or off-site.
• Coordinates report generation and distribution.
• Controls, transfers or terminates any E-Banking
capability, including ATMs
Team Responsibility
Legal Team:
• Advisory capacity to Administrator or
Receiver and Bank Intervention Manager
prior to and during bank Intervention
• Ensures that intervention documents are
complete, accurate, signed and properly filed.
• Review of Contingent Liabilities and
Preparation of the Closing Memoranda and
the Legal Closing Book
Team Responsibility
Legal Team (cont.)
• Oversight of Inherited Litigation Intake
• Provides the Intervention Team with legal
interpretations of any transactional
agreement.
• Processes bond claims and Director and
Officer insurance claims. Duties include
employee interviews, desk audits and
gathering and inspection of bank records.
Team Responsibility
Personnel Team
• Audits and inventories the failed bank’s
personnel files for receipt by the Assuming
Bank.
• Holds employee meetings for failed bank
employees to explain the situation.