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.