Cross-border Insolvency: The FSB Key Attributes of Effective Resolution Regimes Eva Hüpkes Role of Deposit Insurance in Bank Resolution Framework – Lessons from the Financial Crisis November 13-16, 2011 JODHPUR, INDIA

The FSB SIFI Framework Was Lehman the last SIFI to fail? G20 call for actions to end «too big to fail» G20 endorse FSB policy measures for systemically important financail institutions (SIFIs)

A multipronged policy approach Increase loss absorbency Strengthen resolution regimes Strenghten core market infrastructures Enhance supervision

Policy measures on Resolution a new international standard as a point of reference for reforms of national resolution regimes The «FSB Key Attributes of Effective Resolution Regimes» Regularly reviewed and updated under the control of top officials Informed by regular resolvability assessments Recovery and resolution plans for global systemically important financial institutions (G-SIFIs) Among home and key host authorities of G-SIFIs to ensure that they are better prepared for dealing with crises and have clarity on how to cooperate in a crisis Institution-specific cross-border cooperation agreements for G-SIFIs

FSB Key attributes 1. Scope 2. Resolution authority Any financial institution that could be systemic if it fails should be subject to a regime in line with the Key Attributes 2. Resolution authority Operationally independent, but accountable administrative authority with a statutory mandate to pursue financial stability and ensure continuity of critical functions 3. Resolution powers broad range of powers to intervene and resolve a financial institution that is no longer viable, including through transfers of business and creditor-financed recapitalisation (“bail-in” within resolution)

FSB Key attributes (cont’d) 4. Set-off, netting, collateralisation, segregation Legal certainty, effectiveness and enforceability Exercise of resolution powers ≠ event of default Brief stay on termination rights where they arise only by reason of entry into resolution and obligations under the contract continue to be performed (see Key Attributes Annex IV) 5. Safeguards Respect of the statutory hierarchy of claims with flexibility to depart from the pari passu principle to contain the systemic impact or maximise value for creditors as a whole Minimum recovery right “No creditor worse-off than in liquidation” Due process and judicial review 6. Funding Privately financed sources to fund resolution (e.g., deposit insurance or resolution funds) Ex post recoveries from industry, if necessary

FSB Key attributes (cont’d) 7. Cross-border Cooperation Statutory mandate to cooperate and legal capacity to share information and to give effect to foreign resolution measures No discrimination against creditors on the basis of nationality, location of the claim or jurisdiction where it is payable 8. Crisis Management Groups (CMGs) Home and key host central banks, supervisors, resolution authorities and finance ministries of global SIFIs to maintain CMGs 9. Institution-specific cross-border cooperation agreements To set out modalities for cooperation and information sharing among home and key host authorities in the recovery and resolution planning phase as well as in crisis (see Key Attributes Annex I).

FSB Key attributes (cont’d) 10. Recovery and resolution planning Recovery and Resolution Plans (RRPs) at a minimum for all G-SIFIs (see Key Attributes, Annex III, Elements of Recovery and resolution plans) Regular reviews by top officials of home and hosts authorities of resolution strategies 11. Resolvability Assessments To be undertaken for all G-SIFIs to evaluate the feasibility of resolution strategies and their credibility in the light of the likely impact of a SIFI failures and to identify measures to improve resolvability (see Key Attributes, Annex II ) 12. Access to information and information sharing Robust management information systems (MIS) that enable firms to produce up-to-date information on a timely basis No impediments to cross-border sharing of relevant information among authorities subject to appropriate confidentiality

Global SIFIs Institution-specific cooperation agreement CMG Institution-specific cooperation agreement Resolvability assessment Recovery and resolution plan Cooperation and informationsharing with hosts not on CMG Global SIFIs

Improving resolvability Action to improve resolvability Information Structure Operations Resolvability assessment Feasibility Systemic impact Credibility Recovery and resolution plan To identify critical functions and options to preserve them

Addressing cross-border challenges Implementation of Key Attributes will lead to convergence of national resolution regimes thereby facilitating cooperation Non discrimination based on location of creditors or claims will remove incentives to ring fence Resolution authorities will be empowered to cooperate and defer to authorities in other jurisdictions Resolution planning will increase certainty and predictability as regards outcomes under multiple legal regimes Cross-border agreements will set out how different national regimes interact Cooperation within cross-border crisis management groups will establish processes for cooperation and foster trust among home and host Statutory mandates to consider the impact of actions on financial stability in other jurisdictions will help avoid suboptimal outcomes

Way forward - 2012 Peer review of implementation of the Key Attributes Development of an assessment methodology with sector-specific guidance on the various elements of the Key Attributes RRPs and resolvability assessments for all G-SIFIs with initial review by the FSB Peer Review Council by 2013