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26 September 2012

European Parliamentary Financial Services Forum (EPFSF) publishes "Crisis Management" Briefing


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It will be essential to avoid imposing multiple repetitive or inconsistent requirements on cross-border institutions, and to ensure authorities' cooperation and coordination to facilitate the delivery and execution of efficient and reliable recovery and resolution plans.


Introduction

Authorities in all relevant jurisdictions should have the capacity to resolve financial institutions within a reasonable timeframe, without systemic disruption and without requiring the use of taxpayer funds. In the recent financial crisis, policymakers chose taxpayer-funded bailouts as the lesser of two evils, compared with the possible destabilisation of the financial system and harm to the economy that could have resulted from the dis-orderly failure of financial institutions under ordinary insolvency regimes. As a result, various nations and international bodies have taken initiatives to reduce systemic risk by making the failure of these firms less likely, to further strengthen prevention by introducing recovery planning frameworks and, finally, to enhance crisis management through the creation of new resolution regimes. If implemented and administered properly, these initiatives have the potential to create a credible and effective alternative to public bailouts. Policymakers should consider the extent to which the crisis management regime and the Basel III prudential framework would interact with one another so as to develop and implement an efficient, consistent and proportionate safety net.
 
The Briefing paper covers the following areas:
  • Objectives and scope;
  • Resolution financing;
  • Supervisory cooperation;
  • Recovery and resolution plans (RRPs);
  • Assessing resolvability.
Conclusions
 
One of the challenges facing the European Parliament and Council is to find the right balance between the provisions of the future recovery and resolution regime, the other two blocks of the safety net, namely CRD IV and the DGS Directive, and the June 2012 decision of the European leaders to deepen economic and monetary union starting with the integration of banking supervision at the EU level. Another challenge for the co-legislators is that the EU regime will be developed and come into effect after many Member States have already begun designing or implementing their own crisis resolution regimes. RRPs and resolution financing arrangements are central components of a resolution regime and require mobilising key resources for both financial institutions and authorities. Inconsistent resolution regimes would jeopardise other efforts, to promote financial stability, not only within the EU, but also across G20 jurisdictions. It will be essential to avoid imposing multiple repetitive or inconsistent requirements on cross-border institutions and to ensure authorities’ cooperation and coordination to facilitate the delivery and execution of efficient and reliable recovery and resolution plans.


© EPFSF - European Parliamentary Financial Services Forum


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