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Importance of Resolution Regimes for Financial Stability

Importance of Resolution Regimes for Financial Stability. Macro-prudential Policy and Financial Stability: Issues and Challenges. December 16 – 18, 2013 Amman, Jordan. Why do we need an effective Bank Resolution Framework?. Why do we need an effective Bank Resolution Framework?.

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Importance of Resolution Regimes for Financial Stability

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  1. Importance of Resolution Regimes for Financial Stability

    Macro-prudential Policy and Financial Stability: Issues and Challenges December 16 – 18, 2013 Amman, Jordan
  2. Why do we need an effective Bank Resolution Framework?
  3. Why do we need an effective Bank Resolution Framework? To resolve bank Weaknesses / Problems and crises:
  4. Banking Safety Net Banking Safety Net 1. Prompt Correction 4. Intervention 5. Resolution Normal Monitoring Early Warnings 2. Lender of Last Resort 3. Explicit Deposit Insurance
  5. Elements of an Effective Resolution Regime
  6. Scope
  7. Resolution Authority Designated authority for exercising resolution powers In case different resolution authorities are in charge for resolving different entities within a group, a lead authority should be designated
  8. Functions of the resolution authority
  9. Requirements of the Resolution authority
  10. Requirements of the Resolution authority
  11. Resolution Powers - Entry
  12. General Resolution Powers
  13. General Resolution Powers
  14. General Resolution Powers
  15. Transfer of Assets and Liabilities
  16. Bridge Institution – Powers of Resolution Authority
  17. Establishing Bridge Institutions
  18. Bridge Institution – Powers of Resolution Authority
  19. Bail-in Within Resolution
  20. Bail-In Powers of Resolution Authority In a manner that respects the hierarchy of claims in liquidation
  21. Exercise of resolution powers
  22. Safeguards
  23. Safeguards
  24. Funding of Firms Under Resolution
  25. Funding of Firms Under Resolution
  26. Cross-Border Issues
  27. Cross Border Issues- Host Perspective Resolution powers should apply to local branches of foreign firms EXCEPTIONAL In case of discretionary action, need to give prior notification and consult with home supervisor
  28. Crisis Management Groups (CMGs) – G-SIFIs
  29. Crisis Management Groups (CMGs) Enhance Preparedness for and facilitate management of cross-border financial crisis affecting firm
  30. Crisis Management Groups (CMGs)
  31. Resolvability Assessments (At Least for G-SIFIs) Evaluate the feasibility of the resolution strategy and credibility Particular Considerations: Extent to which critical financial services can continue to be performed Nature and extent of intra-group exposures and impact on resolution Ability of firm to provide accurate and timely data in a resolution Robustness of cross-border and information sharing arrangements
  32. Resolvability Assessments (At Least for G-SIFIs) Host Supervisors Home Supervisor GROUP CGM
  33. Recovery and Resolution Planning At Least for domestic systemically significant institutions RRP for G-SIFI is to be informed by resolvability assessment Updated regularly at least annually
  34. Recovery Plans Plan that details options to restore financial strength and viability when firm comes under severe stress Should Include Credible options to deal with range of idiosyncratic as well as market wide stress scenarios Scenarios addressing capital shortfalls and liquidity pressures Processes to ensure timely implementation of recovery options on a range of stress situations
  35. Resolution Plan To protect systemically important functions Making resolution of firm without severe disruption and without exposing taxpayers to loss Includes: Resolution strategy: Operational Plan Strategy and plan should be reviewed annually by top officials of home and host authorities
  36. Resolution Plan - components
  37. Access to Information and Information sharing
  38. Access to Information and Information sharing
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