STRENGTHENING FINANCIAL
STABILITY: THE REVISED IADI
CORE PRINCIPLES AND FSB KEY
ATTRIBUTES
DAV I D W A L K E R
C A N A DA D E P O S I T I N S U R A N C E C O R P O R AT I O N
IADI Annual Conference
Port-of-Spain: 22-23 October 2014
PRESENTATION OUTLINE
I. Background and objectives: Core Principles
and Key Attributes
II. Key comparisons
III. Special considerations
I.
II.
Moral hazard and bail-in
Depositor preference
IV. Next steps
3
3
I. BACKGROUND AND OBJECTIVES:
IADI CORE PRINCIPLES
• The Core Principles for Effective Deposit Insurance Systems were
approved by IADI and the BCBS in June 2009 and Methodology
completed in December 2010.
• IADI and its international partners have prepared a set of revised
Core Principles (issued for public consultation on Sept 1st 2014).
 Key objectives:
 improve the effectiveness of deposit insurance systems in protecting
depositors and contributing to financial system stability...
 ensure the CPs are adaptable to a wide range of country
circumstances, settings and structures…
 mitigate moral hazard.
4
4
REVISING THE CORE PRINCIPLES:
KEY OBJECTIVES
• Strengthen the CPs (e.g. governance, depositor reimbursements,
coverage, funding) and improve safeguards for the use of deposit
insurance funds.
• Incorporate IADI-FSB enhanced guidance on reimbursements, public
awareness, coverage, moral hazard, and funding.
• Update to reflect the greater role played by deposit insurers in
resolution regimes and ensure consistency with the FSB Key
Attributes.
5
•
Address moral hazard concerns within all relevant CPs instead of
restricting moral hazard guidance to a single principle.
•
Add more guidance on deposit insurer’s role in crisis preparedness and
management as well as cross-border issues.
5
BACKGROUND AND OBJECTIVES:
FSB KEY ATTRIBUTES
• The Financial Stability Board Key Attributes of Effective
Resolution Regimes (Key Attributes) were approved in November
2011 and their supporting Methodology under development.
−Key Attributes a new umbrella standard designed to strengthen
resolution regimes.
−Key Attributes influenced the development of the revised Core
Principles (e.g. resolution powers, funding, crisis
preparedness).
• Main objectives:
…to resolve financial institutions in an orderly manner
…without taxpayer exposure to loss from solvency support
…while maintaining continuity of their vital economic functions
6
6
II. TOPIC COMPARISONS
Core Principles
1. Public policy objectives
2. Mitigating and powers
3. Governance
4. Relationships
5. Cross-border issues
6. Crisis preparedness & management
7. Membership
8. Coverage
9. Funding
10. Public awareness
11. Legal protection
12. Dealing with parties at fault
13. Early detection and timely intervention
14. Effective resolution processes
15. Reimbursing depositors
16. Recoveries
7
7
Key Attributes
1. Scope
2. Resolution authority
3. Resolution powers
4. Set-off/netting, collateralization…
5. Safeguards
6. Funding
7. Cross-border cooperation
8. Crisis management groups
9. Institution-specific cross-border COAGs
10. Recovery and resolution planning
11. Resolvability assessments
12. Access to information and info sharing
CONNECTING THE KEY ATTRIBUTES
& CORE PRINCIPLES
KA1. Scope
•Regime for any financial institution that
could be systemic – main focus G-SIFIs.
KA2. Resolution authority (RA)
•Single or multiple RAs.
•Operationally independent, accountable
authority with a mandate to pursue
financial stability.
KA3. Resolution powers
•Broad range of powers to intervene and
resolve institutions, including through
transfers of business, bridge bank and
bail-in within resolution and timely payout
or transfer of insured deposits.
Scope and operating environment
• Adaptable to a wide range of
circumstances, settings and systems.
CP2/3. Mandates , Powers and
Governance
• DI mandates vary from “paybox” to “risk
minimizers”. Many insurers have
resolution powers and are RAs.
• Mandate clarifies roles and
responsibilities of deposit insurer and
is aligned with the mandates of the
other safety-net participants.
• Deposit insurer is operationally
independent and accountable.
• Powers support its mandate.
8
8
CONNECTING THE KEY ATTRIBUTES
& CORE PRINCIPLES
KA4 /5. Set-off, netting…
Safeguards
•Legal certainty, effectiveness & enforceability.
•No creditor worse off than in liquidation principle.
KA6. Funding
• Privately financed sources of funds in
resolution (e.g. DI or resolution funds).
• Ex post recoveries from industry, if
necessary.
• Reference to IADI CPs on deposit insurer
funds & safeguards
CP9: Funding
•Banks pay for deposit insurance.
•Deposit insurer must have ex-ante
funding and assured access to
emergency liquidity.
•Sound fund investment and
management.
•Start-up funding from government or
international donors permitted under
conditions.
•Deposit insurer must authorize use
of its funds.
•Taxation and remittance limits.
9
9
SAFEGUARDS IN MORE DETAIL
IADI funding Safeguards
•Decision-making: the deposit insurer is informed and involved in the decisionmaking process.
•Transparency: the use of the deposit insurer’s funds is transparent and
documented and is clearly and formally specified.
•Exposure limits: where a bank is resolved through a resolution process other than
liquidation, the resolution results in a viable, solvent and restructured bank, which
limits the exposure of the deposit insurer to contribute additional funding in
respect of the same obligation.
•Contributions are restricted: to the costs the deposit insurer would otherwise have
incurred in a payout/liquidation net of expected recoveries.
10
10
Continued…
•No recapitalization: Contributions are not used for the recapitalisation of resolved
institutions unless shareholder’s interests are reduced to zero and uninsured,
unsecured creditors are subject to parri passu losses in accordance with the legal
claim priority.
•Independent audit: the use of the deposit insurer’s funds is subject to an
independent audit and the results reported back to the deposit insurer.
•Ex-post review: all resolution actions and decisions using the deposit insurer’s
funds are subject to ex-post review.
11
11
CONNECTIONS
KA7. Cross-border Cooperation
CP5. Cross-border issues
•Statutory mandate to cooperate and legal
capacity to share information and to give effect to
foreign resolution measures.
•No discrimination against creditors based on
nationality.
•Formal information sharing and coordination in
place among deposit insurers.
•No discrimination against depositors based on
nationality.
KA8-10. Crisis Management Groups,
Resolvabilty Assessment & COAGs
CP6 . Crisis preparedness &
management
•Home, key hosts, central banks, supervisors,
resolution authorities and finance ministries of
GSIFIs to maintain CMGs.
•Information sharing among home & key host
authorities in recovery and resolution planning as
well as in crisis.
•Resolvability assessments for all G-SIFIs to
evaluate feasibility/credibility of RRPs.
•Institution-specific cross-border cooperation
agreements.
•The deposit insurer has effective contingency
planning/crisis management policies/procedures.
•The insurer should be a member of any institutional
framework for coordination involving system-wide
crisis preparedness & management.
CP14. Failure resolution
•Resolution regime should enable the deposit
insurer to provide for protection of depositors and
contribute to financial stability.
•Legal framework includes special resolution regime.
12
12
CONNECTIONS
KA11. Recovery and resolution
planning (RRPs)
•Set out recovery and resolution plans to
be undertaken by all G-SIFIs.
•To be informed by resolvability
assessments.
•Regularly updated and reviewed.
12. Access to information and
information sharing
•Robust management information systems
•No impediments to cross-border sharing
of information among authorities subject
to confidentiality.
CP14. Failure Resolution
•Resolution regime enables the deposit insurer to
provide for the protection of depositors and
contribute to financial stability.
•All banks resolvable through a broad range of powers
and tools which include: powers to preserve critical
bank functions (bridge bank), transfers of deposits
and assets, write-down and/or debt to equity
conversion.
CP15. Reimbursing depositors
•Most insured depositors to be reimbursed within
seven working days utilizing a variety of
reimbursement options.
•Provisions to be made for making advance, interim or
partial payments.
•Access to depositor records at all times; authority to
undertake advance or preparatory exams.
•Scenario planning and simulations mandated.
13
13
III. SPECIAL CONSIDERATIONS
 Moral hazard/ and bail-in issues
− FSB discussions indicate covered (insured) deposits to be excluded
from the scope of bail-inable liabilities.
− Some jurisdictions intend to exclude all uninsured depositors from
bail-in.
− G-SIB resolution would likely also involve use of funding from
resolution funds and possibly deposit insurers.
 No depositor preference in KAs or CPs
− But, various forms of depositor preference being increasingly
adopted in many jurisdictions.
14
14
IV. NEXT STEPS
 IADI: Finalization of revised CPs and development of
assessment framework tools (e.g. Handbook for
Assessors).
 Key areas many jurisdictions will need to focus on:
−
−
−
−
−
−
15
15
Governance;
Coverage;
Fund adequacy and safeguards;
Crisis preparedness/management ;
Cross-border agreements; and
Payout timeliness.
NEXT STEPS
 FSB: Emphasizing the acceleration of reform initiatives to
ensure progress in adopting resolution regimes consistent with
the KAs because:
− Few resolution regimes are fully aligned with the KAs.
− Many barriers to resolvability remain (e.g. operational, structural
and financial).
− Need to build-up adequate loss absorbency across G-SIBs.
− Address cross-border close-out-risks and cross-border resolution
cooperation.
 IADI and FSB: Continue development of supporting guidance
both individually and together where common areas of interest
(e.g. funding).
16
16
17
13th IADI Annual Conference
“Updated Core Principles to Strengthen the Financial Stability Architecture”
ESTABLISHING A RESOLUTION AUTHORITY
Governance and resolution mandates
Anna Trzecińska
Bank Guarantee Fund, Poland
Port-of-Spain, Trinidad, 22-23 October 2014
Evolution of BFG mandates
February 1995
The Bank Guarantee Fund was established on the basis of the Act of 14
December 1994 on the Bank Guarantee Fund as a response to
Directive 94/19/EC on deposit guarantee schemes of 30 May 1994.
 Hybrid funding: mainly ex-ante with an ex-post component
 From the very beginning the mandate of BFG wider than pure pay-box
Apart from reimbursement of covered deposits required by the directive
BFG’s powers included:
• Collection and analysis of information on institutions covered by the
guarantee system: access to data collected by the Central Bank (assigned with
supervisory functions),
• Provision of assistance to entities covered by the guarantee system
provided from the Assistance Fund: loans, guarantees and endorsements for
entities at risk or as support for acquirers in merger and acquisition processes;
20
Evolution of BFG mandates
January 2001
Enhanced powers to provide support to cooperative banks.
• Returnable financial assistance on preferential conditions,
• Addressed to entities in which the threat of insolvency is absent,
• To finance needs relating to mergers of cooperative banks,
• Granted from separate Cooperative Bank Restructuring Fund.
November 2008
• Coverage limit raised to 50 000 EUR,
• No 10% co-insurance.
December 2010
• Coverage limit raised to 100 000 EUR,
• Payout period reduced to 20 working days.
Directive 2009/14/EU
on deposit-guarantee
schemes as regards
the coverage level
and the
payout delay
21
Evolution of BFG mandates
December 2010
Enhanced control powers in entities covered by the guarantee system.
• BFG assigned with the power to carry out audits with respect to the accuracy
of data contained in calculating systems of all banks covered by the system.
• On-site and off-site inspections.
• Accuracy data audits supplemented by the power of review with respect to
entities receiving BFG financial assistance, assigned to BFG since its
inception, where it:
─ verifies the correctness of assistance funds allocation,
─ audits the implementation of a reorganization program,
─ monitors the economic and financial situation of the bank as well as
its management.
• Independently of its auditing powers, BFG may assume the role of a
trustee, overseeing the implementation of a reorganization program with
respect to a bank receiving BFG financial assistance.
22
Evolution of BFG mandates
May 2013
BFG assigned with new powers in relation to credit unions, including some
resolution tools (bridge bank, support to an acquirer in P&A) and providing
financial assistance to entities at risk (guarantees, loans classified as own funds)
from the Cooperative Savings and Credit Union Guarantee Fund.
September 2013
New power to provide capital support to banks.
• Guarantees to increase the bank's own funds level,
• Guarantee executed in the event of insufficient demand by purchase or
assumption of stock, bonds or bank-issued securities,
• Provided upon a request submitted by the Minister of Finance,
• Financed from the newly created Stabilization Fund.
November 2013
Deposits collected by credit unions covered by BFG guarantee.
Evolution of BFG mandates
COOPERATIVE
CREDIT
BANKS
BANKS
UNIONS
PREVIOUSLY
COMMERCIAL
Credit Union
Mutual Insurance Society
AFTER THE REFORM
Bank Guarantee Fund
43
572
55
COMMERCIAL
COOPERATIVE
CREDIT
BANKS
BANKS
UNIONS
Bank Guarantee Fund
Under the new legislation credit unions are covered by BFG guarantee only.
Evolution of BFG mandates
Ongoing developments
The following changes to BFG mandate and powers are a result of two EU
regulations:
• Directive 2014/49/EU on deposit guarantee schemes (DGSD), and
• Directive 2014/59/EU establishing a framework for recovery and
resolution (BRRD).
DGSD imposes obligations, inter alia, to:
• Reimburse covered deposits within 7 working days,
• Reach a minimum target level of 0.8% of covered deposits by 3rd July 2024,
• Ex-ante funding based on risk-based premiums,
• Use of DGS funds for resolution purposes.
25
Pay-out in failure of credit union „Wspólnota”
Pay-out trigger conditions met:
20 working days for reimbursement
19.08.2013
General Preparedness
Program of data
accuracy audits
launched
30.08.2013
First meeting
with the
receiver
29.11.2013
Credit unions
covered by BFG
guarantee system
Stage I
Before pay-out trigger
18.07.2014
Activity of the
credit union
suspended by
the PFSA
23.07.2014
Depositors’ list
prepared by the
credit union and
forwarded to BFG
24.07.2014
Reimbursement
list prepared by
BFG and
delivered to the
agent-bank
Stage II
Reimbursement list
preparation
28.07.2014
Pay-out of covered
deposits by
the agent-bank
starts
Stage III
Pay-out handled
by agent-bank
20.09.2014
Pay-out of covered
deposits by
BFG’s office starts
Stage IV
Pay-out handled
by BFG
Helpdesk for depositors of the credit union: helpline, BFG website etc.
26
Evolution of BFG mandates
Deterioration of cooperative savings and credit unions’ financial situation
Failing or likely to…
Viable
Prevention
Early supervisory intervention
Financial support granted by BFG to a
credit union at risk of insolvency
Restructuring measures
If the Polish National Association of Credit Unions
refuses to grant support
Restructuring decisions
 Upon application of a credit union at risk,
 Available only to entities being subject to
reorganization proceedings conducted
according to the requirements of the PFSA,
Insolvent
Purchase and assumption:
 partial or whole credit union
 by other credit union or a bank
 Positive decision of the PFSA required,
 BFG’s claims fully collateralized,
 Forms of support:
• Guarantee,
 BFG may acquire or assume shares of a bank to
participate in credit union restructuring
measures as an acquirer,
 BFG may provide to the acquirer, financial
assistance in the form of:
• Endorsement,
• Purchase of shares,
• Loan (can be classified as own funds)
• Guarantee,
• Loan,
• Loss-sharing agreement,
• Subsidy.
BFG assistance
in the restructuring of credit unions
1. BFG may provide assistance in the form of:
• total or partial guarantees to cover losses arising from risks associated with acquired property
rights or liabilities
• subsidies to cover the difference between the value of acquired property rights and liabilities
• loans
• guarantees
• subscription of shares of the acquiring bank
2. In providing support BFG has the right to participate in profits relating to acquired property rights
3. Detailed conditions for support are defined in individual agreements
Subsidy
1
A subsidy is granted to cover the difference
between the value of acquired property rights and
liabilities arising from guaranteed funds
Guarantee of loss coverage
A guarantee of loss coverage may be given up to
100% of the balance sheet value of the acquired
property rights or obligations, in particular:
1) loans to households for consumption;
2
The value of the acquired property rights arising
from guaranteed funds is determined based on cash
accounting records as at the date of acquisition
2) mortgage loans to households;
3) shares
4) debt securities
3
The subsidy is paid under the terms of an individual
agreement
5) units of investment funds on the money market
4
The obligations of the transferee are specified in the
subsidy agreement
6) investment certificates of closed investment
funds
PFSA decisions on restructuring credit union
Receiver
Sequence of events
29.07.2013: PFSA established a
receiver for the duration of the
reorganization program to
strengthen financial situation of the
entity through increase of capital
and operational efficiency
• Trigger condition met (ratio of
own funds to total assets below
1%),
• Polish National Association of
Credit Unions refused to provide
assistance,
• Lack of potential
among credit unions.
acquirers
Tasks of the receiver:
• Draws up and agrees a
reorganization program with the
PFSA,
• Coordinates implementation of
the program,
• Informs the PFSA, the Polish
National Association of Credit
Unions and supervisory board of
the credit union about the effects
of corrective measures.
17.07.2014: PFSA designated 7-day
period to submit offers by domestic
banks interested in P&A transaction
14 August 2014: – decision of the
PFSA to take over the credit union
by the bank
Takeover of the credit union
by the bank
• Credit union taken over by the
bank on 01.09.2014,
• Before
that
date
asset
management of the credit union
goes to the bank-acquirer, credit
union operates and provides
services to its members on the
current basis,
• Financial statements at the
acquisition date should be
issued by the acquirer within 15
days from the date of the
acquisition,
• Acquirer will order the auditor
to
examine
the
financial
statements of the credit union
and shall provide a report and
the
auditor's
opinion
immediately
after
being
prepared.
29
BFG assistance
in the restructuring of credit unions
Initial work
Preparation
of
internal
regulations in the field of
providing financial support
to credit unions or acquirers
in P&A transactions
Audit on the accuracy of
data contained in calculating
systems of the credit union
- value of covered deposits
at the day of takeover
Draft
standard
form
contracts on subsidy to
acquirer and loss-sharing
agreements
Operational preparations in
the field of IT solutions
Contract
fulfillment
Process
within BFG
Conditions
Financial Assistance Dept.
The requirements to grant support:
1. Recognition by BFG of the results of
an audit of the financial statements
2. Positive opinion of the PFSA and no
risk to safety of depositors' funds
30
days
Draws up an application for
assistance for the acquirer
Committee for the Assessment of
Requests for Assistance
Opinion
Council of the Bank Guarantee
Fund
3. The amount of BFG funds granted
for support must not be higher than
the amount of a potential pay-out
Opinion
Management Board
4. Use of the equity of the entity for
covering losses
Decision on financial assistance
Agreement with the acquirer
BFG monitors the fulfillment of obligations arising from contracts, especially contracts of
loss coverage:
• settlement of the guarantee on a semiannual basis
• control of the exercise of the beneficiary obligations under the agreements
Resolution framework development in Poland
International experiences
in crisis management
Global and EU
recommendations and
initiatives
Lack of adequate
resolution regime
01/2011
Bank Guarantee Fund indicated as a
leading institution by the Ministry of Finance
October 2011
Establishment of a special Working
Group by the Financial Stability
Committee
BFG
Ministry of Finance
Chaired by the President of BFG
Technical
Details of a
Possible BRR
Framework
10/2011
Key
Attributes…
Cooperation with the World Bank in
the field of a bank resolution
framework within technical support
(upon request from the Ministry of Finance)
National Bank of Poland
Polish FSA
Project coordinated by BFG
31
Resolution framework development in Poland
Adopted work plan
Ministry of
Finance
FSC Working Group on Bank Resolution
Establishment of
an FSC special
Working Group
Stage I
Conceptual
work
Schedule built
in compliance
with FSB
recommendations
Stage II
Stage III
Study
visits
Design of
draft
legislation
Know the
practice, benefit
from experience
Legislative
process
External legal
experts support
in terms of
congruence with
internal and
European law
Lex
32
Resolution framework development in Poland
April 2012
• Financial Stability Committee approved technical details
for bank resolution framework in Poland proposed by the
Working Group,
• Bank Guarantee Fund as a resolution authority with full
scope of resolution powers.
December
2012
• Draft legislation forwarded to the Minister of Finance for
further legislative process.
2013 / 2014
Legislative process:
• Impact assessment,
• Intradepartmental consultations,
• Public consultations (including consensus conferences).
2014
Full adjustment to the final BRRD provisions.
33
Resolution framework development in Poland
BFG as a resolution authority
• Strong position in the financial safety net and active role in crisis
management,
• Appropriate ex-ante funds available,
• Advanced analysis including Early Warning System,
• Experience in restructuring measures,
• Governance in line with international standards → Core Principles.
34
BFG as formal member of safety net
The Financial Stability Committee was established by force of law in 2008 and
consists of four member entities, whose representatives meet on a regular
basis
MINISTRY
OF FINANCE
NATIONAL
BANK
OF POLAND
FINANCIAL
SUPERVISION
AUTHORITY
BANK GUARANTEE
FUND*
THE FSC’S TASKS
INCLUDE
* FROM OCTOBER 2013
Crisis management and coordinating the activities of members in situations that
constitute a threat to the stability of the financial system
Ensuring a proper flow of information with respect
to major events and trends that may pose a threat to financial stability
The development and adoption of procedures in case of the emergence of a
threat to financial stability
On-going assessment of the situation in the domestic financial system
Preventing crisis escalation in the domestic financial system.
Funds available to BFG
in billion PLN
BFG is already compliant with the new
European DGS directive and has one of the
highest fund to deposit ratios in the EU
Remarks: For the purpose of comparability between the year 2013 and previous years, the 2013 data
does not consider funds collected for allocation to the Stabilization Fund and the Cooperative Savings
and Credit Union Guarantee Fund.
Source: BFG data
36
BFG funding mechanism
Agreements with several banks
•
BFG agreement with banks on transactions with debt securities on
the secondary market. These transactions contain repo and sellbuy back transactions.
IN CASE OF A NEED FOR EMERGENCY FUNDING:
Agreement between the National Bank of Poland
and the Bank Guarantee Fund
•
•
Aim is to create an institutional framework which, in the case of
pay-outs, would facilitate obtaining fast, short-term liquidity from
NBP.
The agreement is one of a number of actions taken to reinforce the
stability of the financial system and safety-net in Poland.
Loans granted from the state budget
37
Early Warning System
One of the statutory tasks assigned to BFG (from its establishment in 1995) is
collecting and analyzing information on entities covered by the guarantee system.
2009/2010
Analytical toolkit supplemented by Early Warning System
Complex
Considers wide
range of areas
Detailed
Sufficient set
of indicators
for each area
Efficiency
CI
Core indicator
Capital
adequacy
Credit risk
SI1
SI2
SI3
Supplementary indicators
Dynamic
Considers changes in the financial and economic
situation of banks in 3- and 6-month trends
Flexible
Qualitative indicators amended with qualitative
assessments based on non-financial data
Credit
Risk
Experience in restructuring measures
Loans disbursed from the Assistance Fund
The financial assistance extended by BFG has yielded measurable financial results, has raised
confidence in the banking sector, has assured broad access to banking services and has contributed
to increasing banking sector stability.
thousands of PLN
number of loans
28
800,000
30
Amount in thousands of PLN left scale
700,000
600,000
Number of loans - right scale
20
17
500,000
14
11
400,000
15
9
6
6
10
5
200,000
1
100,000
2
1
0
5
1
0
0
0
0
0
In the years 1996-2013 financial assistance extended by BFG was used for:
independent bank reorganization program proceedings
bank takeovers
purchase of shares of banks facing the threat of insolvency by new shareholders
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
0
1996
0
Source: BFG data
300,000
25
PLN 3,790,342.4 thousand
PLN 2,249,050.0 thousand
PLN 1,306,292.4 thousand
PLN 235,000.0 thousand
39
BFG compliance with the Core Principles
Core Principles for Effective Deposit Insurance Systems
BFG was compliant with IADI – BCBS Core Principles since their
implementation in 2009
• In 2013 a detailed assessment of observance was conducted by a
team of experts from the World Bank and the International Monetary
Fund,
• It was found that BFG is Compliant or Largely Compliant with 16 out
of 17 applicable Core Principles and Materially Non-Compliant with
only one Core Principle,
• The only one deficiency will be mitigated
by the new resolution law.
40
BFG compliance with the revised CPs
CPS NO.
CRITERIA
ASSESSMENT













CP1
Public Policy Objectives
CP2
Mandate and Powers
CP3
Governance
CP4
Relationships with Other Safety-Net Participants
CP5
Cross-border Issues
CP6
Deposit Insurer’s Role in Contingency Planning and Crisis Management
CP7
Membership
CP8
Coverage
CP9
Sources and Uses of Funds
CP10
Public Awareness
CP11
Legal Protection
CP12
Dealing with Parties at Fault in a Bank Failure
CP13
Early Detection and Timely Intervention
CP14
CP15
Failure Resolution
Reimbursing Depositors
pending
CP16
Recoveries
pending

• BFG is compliant with most of the IADI – BCBS Revised Core Principles for Effective
Deposit Insurance Systems,
• The deficiencies will be mitigated by the new resolution law which will be introduced in
Poland.
THANK YOU
www.bfg.pl
42
EXPANDING ROLE FOR DEPOSIT INSURER WITHIN
CRISIS MANAGEMENT AND CROSS BORDER
RESOLUTIONS
David S. Hoelscher
I. Function of Deposit Insurance
II. Expanded Role of Deposit Insurance
III. Resolution Mandate in the Revised Core Principles
IV. Preparing for an Expanded Mandate
V. Conclusions
45
FUNCTION
OF
DEPOSIT INSURANCE
47
Institutional framework varies widely


Authorities design safety nets given local conditions
Role of deposit insurer varies widely across jurisdictions
Narrow mandate, paybox systems
Only responsible for the reimbursement of insured deposits
A “paybox plus” mandate
Reimbursement plus a limited role in resolution (funding)
A “loss minimizer” mandate
Responsible for selection/funding of resolution strategies
A “risk minimizer” mandate
A full suite of resolution powers and prudential oversight
48
Number of Deposit Insurance Systems
49
Clearer focus on financial stability


Less concern about only protecting unsophisticated depositors
Less concern about moral hazard from high coverage
Expanding role in risk analysis and diagnosis




Analysis of banking conditions to complement supervisors
Even a paybox needs an independent evaluation ability
Detailed and early information sharing
Participation in crisis management committees
Expanding role in resolution activities (mandates)



Information sharing and coordination
Responsibility for protecting DIA funds
Scenario testing/simulation exercises
51
DIAs with Broad Mandates
(In percent of all DIAs)
90
80
70
60
50
2004
40
2013
30
20
10
0
total
Africa
America
Asia
Europe
Middle East
52
DIA Role In Bank Resolution
(End 2012)
Payout
Argentina
Australia
Brazil
Canada
France
Germany
Hong Kong
India
Indonesia
Italy
Japan
Korea
Mexico
Netherlands
Russia
Singapore
Spain
Switzerland
Turkey
UK
USA
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
yes
Yes
yes
Supervision
Resolution
No
No
No
No
No
Yes
No
No
No
No
Yes
Yes
No
No
Yes
No
No
No
No
No
Yes
1/ Mainly provides financing for restructuring/mergers.
2/ A new Act will give DIA role in funding resolution
Yes 1/
Yes
Yes 1/
Yes
Yes
No
No
Yes 1/
Yes 1/
Yes 1/
Yes
Yes
Yes
No 2/
Yes
No
Yes
No
Yes
Yes 1/
Yes
53
Total
16.3
36.3
Paybox
Paybox plus
13.8
Loss minizer
Risk minimizer
33.8
54
DIAs by Mandate: 2013
Africa
20.0
40.0
(In percent of total in each region)
America
Paybox
17.4
21.7
Paybox
Paybox plus
Loss minizer
40.0
Paybox plus
13.0
Loss minizer
Risk minimizer
47.8
Risk minimizer
0.0
Asia
23.5
Europe
6.1
Paybox
41.2
Paybox plus
48.5
Loss minizer
11.8
Risk minimizer
23.5
Paybox
18.2
Paybox plus
Loss minizer
27.3
Risk minimizer
55
Current Revisions of Core Principles 2014

More prescriptive:
◦ Strengthened guidance on adequacy of coverage
◦ Mandatory ex-ante funding
◦ Seven day payout target


Strengthening governance frameworks
New Crisis Management Core Principle
◦ Emphasize establishment of coordinating framework

More safeguards
◦
◦
◦
◦
Safeguards on use of DI funding in resolution
Strengthened governance standards
Strengthened rule on information sharing
Post mortem review following failures
57
Principle 6 – DEPOSIT INSURER’S ROLE IN CONTINGENCY PLANNING
AND CRISIS MANAGEMENT
The deposit insurer should have in place effective contingency planning and
crisis management policies and procedures to ensure it is able to effectively
respond to the risk of bank failures and other events. The development of
system-wide crisis preparedness strategies and management policies should
be the joint responsibility of all safety-net participants.
Elements of compliance
 Contingency planning and crisis management procedures
 Regular testing of plans
 Member of any interagency coordination agency
 participates in the development of pre- and post-crisis management
communication plans
58
Principle 5 – CROSS-BORDER ISSUES
Where there is a material presence of foreign banks in a
jurisdiction, formal information sharing and coordination
arrangements should be in place.
Elements of compliance


Formal information sharing, coordination arrangements exist
Agreements determine how responsibilities shared
59
Principle 14 – FAILURE RESOLUTION
An effective failure-resolution regime should enable the deposit
insurer to provide for protection of depositors and contribute to
financial stability. The legal framework should include a special
resolution regime.
Elements of compliance




The DIA has operational independence and sufficient resources
The resolution regime has a broad range of powers, options
Objectives, mandates, and powers among agencies are clear
Resolution decisions cannot be reversed by legal action
60
Preparing for an Expanded Mandate
Essential Reforms for Expanded Mandate
Political consensus on strengthening deposit insurance systems
Strengthen coordination within safety net
◦ Develop information sharing protocols
◦ Engage with other safety net players on a regular basis
Strengthen diagnostic capacity (even paybox)
◦ Develop systematic analysis of banking system
◦ Develop early warning systems
◦ Coordinate diagnosis and viability assessment with other agencies
Strengthening funding structures
◦ Must protect depositor funding
◦ Government support may be needed
Staffing to meet expanded skills
62
Conclusions
The changing role of deposit insurance
•
•
•
•
Financial stability a major policy objective for deposit insurance
The deposit insurer has a growing role in maintaining stability
Safety net participants will coordinate more closely
Funding is at risk (even for paybox)
With changing role, come changing responsibilities
◦ Need for a strong analytic capacity
◦ Need to understand resolution tools (even paybox)
64