Museo del Risparmio: Edutainment at the service of financial literacy –... Principles on bail-in execution – EBF response to FSB consultation
EBF adviser: Saif Chaibi
Publication date: 2 February 2018
- EBF supports the approach provided by the Financial Stability Board (FSB) which aims at operationalising funding within the resolution planning.
- As recognized in part 4, banks in resolution situations should have the guarantee of a credible public back stop for use when necessary, with a clear understanding of the liquidity resources available and conditions to be met.
- A clear message needs to be sent following a resolution process that the bank is solvent again and that access to liquidity sources will mitigate concerns and facilitate private investors to step in.
- Conservative liquidity indicators such as the LCR and NSFR should neither be duplicated nor recalibrated for resolution. The LCR quantifies liquidity needs in a stress scenario for 30 days. If a resolution strategy cannot be implemented during this period then the resolution strategy might not be the right answer.
- Responsibilities between authorities and banks should be clarified. The fulfilment of “the principles for sound liquidity risk management and supervision” proposed by BCBS should be enough to cover section 1 of the FSB consultation paper. However, in order to get organised and act quickly to estimate liquidity needs, the communication between resolution authorities and banks should be guaranteed.
- We support the elements in the consultative document that confirm that home and host resolution authorities, central banks and supervisors should cooperate to support the consistent and effective implementation of group-wide and local funding plans, as well as establish clear protocols and division of responsibilities during both a resolution scenario and the events leading up to that point, and that plans should be detailed and established timely, in advance and to fit banks with cross-border banking models. These plans should then e.g. include how collateral can be utilised, even if eligibility criteria between central banks differ and cash is needed in currencies which differ from collateral the bank is holding.
- A bank should be allowed to be in breach of its LCR/NSFR in the first steps of resolution or at least to be able to take central bank eligible assets into account in the reserves for LCR and NSFR computation.