Article
Application of the Key Attributes of Effective Resolution Regimes for Financial Institutions to State-Owned Banks (World Bank Report)
Equitable Growth, Finance & Institutions Insight
(2022)
Abstract
In this paper, we address the application of the FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions (‘KAs’) to state-owned banks (‘SOBs’). SOBs typically play an important public policy role, especially, but not only, in emerging markets and developing economies. They often also operate under a different legal framework from privately-owned banks (POBs), with implications for bank resolution, and their failure can trigger doom loops. We develop a taxonomy of state capital contributions to SOBs to highlight the differences between ordinary recapitalizations, bailouts, and bail-ins, as we find that the terminology is not used consistently across jurisdictions. We explain why SOBs should be subject to the provisions of the KAs and consider the main practical challenges for application. We then move to elaborate on the ways in which the KAs should concretely apply to SOBs, with special emphasis on bail-ins and the resolution authority’s powers and tools. We also discuss policy implications and offer recommendations. Our main conclusions are that:
1. Depending on the circumstances, a capital injection by the state in a failing state-owned bank can be a bail-out, a bail-in or an ordinary shareholder capitalization, and we propose criteria to clarify this distinction, given that it has implications that go beyond the context of resolution;
2. The Key Attributes apply to SOB in the same way they apply to privately-owned banks, and policymakers should remove any barriers to such application.
3. Where an SOB develops functions that go beyond those of a commercial bank, authorities should design resolution strategies that allow for the continuation or transfer of those functions.
Recovery and Resolution Planning are specially relevant to SOBs given that public ownership is often coupled with legislation that restricts the adoption of some resolution tools, or require some degree of adaptation.
Keywords
- state-owned banks,
- resolution,
- Key Attributes of Effective Resolution,
- World Bank,
- banking regulation
Disciplines
Publication Date
September 27, 2022
Citation Information
Bruno Meyerhof Salama, Danielo Queiroz Palermo and Eva M. Gutierrez, Application of the Key Attributes of Effective Resolution Regimes for Financial Institutions to State-Owned Banks. Equitable Growth, Finance, and Institutions Insight, Washington, D.C.: World Bank Group, Sep. 27, 2022.