Archive for the ‘Uncategorized’ Category

Bank Resolution

April 17, 2010
I have just finished an analysis on the current status of bank resolution. Key findings:
• The most senior political leaders have requested that the cross-border resolution regime for failing banks is to be reviewed as to not repeat the experience in the recent crisis, and key regulatory and legislative bodies have recently published and consulted on specific proposals.
• There is an agreement amongst regulators, industry, and sovereigns that there is a strong need for an international harmonisation of a better co- operation in the resolution process, and that new tools are needed.
• There is also a broad agreement about some of the tools needed, eg bridge banks, asset and liability transfers, and bad banks. Others – eg living wills, ex-ante burden sharing agreements, and hard intervention triggers – are more controversial.
• Whilst the regulators seem to favor an integrated resolution regime where international groups are dealt-with as a whole, sovereigns and industry seem to push back in this idea, and to favor a more local approach where every jurisdiction deals with its own legal entities, as is the case today.
• Assuming the political will to address the cross-border issue remains it is therefore likely that there will be a strong push for groups to reorgan- ise along juridictional lines, with all local entities being self-sufficient in terms of solvency, liquidity, and also risk management and governance.
• The strategic implications are that in this scenario cross-border groups will have to reconsider (i) whether their engagement in certain jurisdic- tions are core or marginal, and (ii) how to address the self-suffiency issue, eg through decreased lending or through competition for deposits.
• Local banks, which will not be strongly impacted by those proposals directly (unless the proponents of a level playing field get their way) will nevertheless be impacted by the changing behaviour of their cross border competitors in their markets.