Bank Recovery and Resolution
Bank Recovery and Resolution: overview
In the wake of the global financial crisis, work has been ongoing internationally to address the issue of banks being ‘too big to fail’ – i.e. to ensure that the cost burden of any future bank failure is for the account of its shareholders and creditors, and not for the taxpayers, who ultimately ‘bailed-out’ troubled banks during the crisis.
In 2011, the Financial Stability Board, which had been created by the G20 Governments in response to the financial crisis, published a set of “Key Attributes of Effective Resolution Regimes for Financial Institutions”. These have since informed the development of Bank Recovery and Resolution regulations which have been introduced in many jurisdictions around the world.
Approach to Bank Recovery and Resolution in the Isle of Man
The Isle of Man Treasury recently concluded a public consultation on the Bank (Recovery and Resolution) Bill 2020. The draft Bill was prepared by the Treasury in collaboration with the Authority, following stakeholder input from locally licensed banks and their professional advisers during the Bill development phase. The consultation response document can be accessed here.
The Bill completed its passage through the branches of Tynwald in June 2020 and received Royal Assent on 17 November 2020. The new Bank (Recovery and Resolution) Act 2020 will come fully into force on 4 January 2021, on which date the Financial Services Authority will be given a new mandate as the Resolution Authority for the Island, in addition to its existing responsibilities.
One learning from the financial crisis was the need for banks themselves to develop detailed plans as to how they would seek to recover from a stress event, or events, serious enough to threaten the viability of the bank. By considering these events in advance and documenting actions which bank management might take in response, the resilience of a bank to a potential ‘shock’ event may be improved.
The Authority requires banks incorporated in the Isle of Man to prepare recovery plans and to keep them up to date. These recovery plans are also to be submitted to the Authority for review, normally on an annual basis. Guidance to assist banks in the preparation of their recovery plans is available here. This guidance will be further reviewed and updated once the new Act comes into force.
Where considered relevant, the Authority will also obtain and review the recovery plans for banks which are incorporated in other jurisdictions and which have branch operations in the Isle of Man.
The Financial Stability Board’s ‘Key Attributes of Effective Resolution Regimes for Financial Institutions’ can be accessed here
Further relevant documents will be added to this section on an ongoing basis.