Role Expansion of Deposit Insurers in Crisis Management
E
XPANDING
R
OLE
FOR
D
EPOSIT
I
NSURER
WITHIN
C
RISIS
M
ANAGEMENT
AND
C
ROSS
B
ORDER
R
ESOLUTIONS
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
3
F
UNCTION
OF
D
EPOSIT
I
NSURANCE
5
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
6
7
Number of Deposit Insurance Systems
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
9
10
11
12
13
DIAs by Mandate: 2013
(In percent of total in each region)
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
15
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
16
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
17
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
18
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
20
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)
22
In the realm of financial stability, the role of deposit insurers is evolving to encompass broader responsibilities, including risk analysis, crisis management, and cross-border resolutions. This transformation involves expanding mandates, enhancing resolution activities, and ensuring the protection of Deposit Insurance Agency funds. Through increased information sharing, participation in crisis committees, and scenario testing, deposit insurers are adapting to meet new challenges in the financial landscape.
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Presentation Transcript
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 3
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 6
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 9
DIAs with Broad Mandates (In percent of all DIAs) 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 10
DIA Role In Bank Resolution (End 2012) Payout Supervision Resolution 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 No No No No No Yes No No No No Yes Yes No No Yes No No No No No Yes 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 1/ Mainly provides financing for restructuring/mergers. 2/ A new Act will give DIA role in funding resolution 11
Total Total 16.3 36.3 Paybox Paybox plus 13.8 Loss minizer Risk minimizer 33.8 12
DIAs by Mandate: 2013 (In percent of total in each region) DIAs by Mandate: 2013 (In percent of total in each region) Africa Africa America America 20.0 Paybox 17.4 21.7 Paybox 40.0 Paybox plus Paybox plus Loss minizer 13.0 Loss minizer Risk minimizer 40.0 Risk minimizer 47.8 0.0 Asia Asia Europe Europe 6.1 23.5 Paybox Paybox 41.2 18.2 Paybox plus Paybox plus 48.5 Loss minizer 11.8 Loss minizer Risk minimizer Risk minimizer 27.3 23.5 13
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 15
Principle 6 DEPOSIT INSURERS ROLE IN CONTINGENCY PLANNING AND CRISIS MANAGEMENT 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. The deposit insurer should have in place effective contingency planning and 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 16
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 17
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 18
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 20
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) 22
