Post on 12-Jan-2016
13th IADI Annual ConferenceUpdated Core Principles to Strengthen the Financial Stability Architecture22-23 October 2014
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
OUTLINE
3
FUNCTION OF DEPOSIT INSURANCE
Role in the Safety Net
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” mandateReimbursement plus a limited role in resolution (funding)
A “loss minimizer” mandateResponsible for selection/funding of resolution strategies
A “risk minimizer” mandateA full suite of resolution powers and prudential oversight
Functions of Deposit Insurance
6
7
Number of Deposit Insurance Systems
EXPANDED ROLE OF DEPOSIT INSURER
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
Evolving Framework for Deposit Insurance
9
10
total Africa America Asia Europe Middle East0
10
20
30
40
50
60
70
80
90
DIAs with Broad Mandates(In percent of all DIAs)
20042013
Mandates in G20 Countries
DIA Role In Bank Resolution(End 2012)
Payout Supervision Resolution
Argentina Yes No Yes 1/Australia Yes No Yes
Brazil Yes No Yes 1/Canada Yes No YesFrance Yes No YesGermany Yes Yes NoHong Kong Yes No No
India Yes No Yes 1/Indonesia Yes No Yes 1/
Italy Yes No Yes 1/Japan Yes Yes YesKorea Yes Yes YesMexico Yes No YesNetherlands Yes No No 2/
Russia Yes Yes YesSingapore Yes No No
Spain Yes No YesSwitzerland Yes No No
Turkey yes No YesUK Yes No Yes 1/USA yes Yes Yes
1/ Mainly provides financing for restructuring/mergers. 2/ A new Act will give DIA role in funding resolution
11
12
DIAs by Mandate: 2013(In percent of total)
36.3
33.8
13.8
16.3
Total
PayboxPaybox plusLoss minizerRisk minimizer
13
20.0
40.0
40.0
Africa
PayboxPaybox plusLoss minizerRisk minimizer
17.4
47.8
13.0
21.7
America
PayboxPaybox plusLoss minizerRisk minimizer
41.2
23.5
11.8
23.5
Asia
PayboxPaybox plusLoss minizerRisk minimizer
48.5
27.3
18.2
6.1
Europe
PayboxPaybox plusLoss minizerRisk minimizer
DIAs by Mandate: 2013(In percent of total in each region)
RESOLUTION MANDATE IN THE REVISED CORE PRINCIPLES
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
Evolving Framework for Deposit Insurance
15
Principle 6 – DEPOSIT INSURER’S ROLE IN CONTINGENCY PLANNING AND CRISIS MANAGEMENTThe 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
Evolving Framework for Deposit Insurance
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
Evolving Framework for Deposit Insurance
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
Evolving Framework for Deposit Insurance
Preparing for an Expanded Mandate
Essential Reforms for Expanded MandatePolitical 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
Preparing for Expanded Mandate
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)
Conclusions
22
Thank you