1. NBU and DGF in the Crossroad of the Reform Marius Vismantas Country Sector Coordinator, Financial and Private Sector Development Ukraine, Belarus & Moldova The views expressed in this presentation do not constitute an official position of the World Bank Group on the issues discussed

2. Decision making today Supervision – Supervises – Becomes alert – Issues warnings – Develops corrective actions – C ALLS A BANK A TROUBLED BANK – Introduces TA – Develops rehab/resolution plan – Decides on liquidation – Liquidates DGF Pays out deposits

3. Decision making after Supervision – Supervises – Becomes alert – Issues warnings – Develops corrective actions – C ALLS A BANK A TROUBLED BANK DGF – Introduces “TA” – Develops rehab/resolution plan – Decides on liquidation – Liquidates – Pays out deposits

4. Separation of troubled banks from regular supervision In banks, conventional wisdom suggests separating problem assets from the rest of the bank – Keeps management focused on core banking – Allows more efficient NPL resolution – limited funding and skills channeled to a specific purpose Similarly, troubled bank resolution should be separated from regular supervision – Keeps the regulator focused on core supervision – Key is (1) calling a bank a troubled bank and (2) determining least-cost resolution strategy – two crucial judgments which would be separated – Allows more efficient troubled bank resolution – Strengthens both institutions rather than weakens them individually - the system is strengthened as a consequence

5. NBU and DGF Cooperation - TODAY Information sharing – but mostly of past events/decisions; little added by DGF to the supervisory process Contingency credit line NBU DGF NBU overextending, loaded with all judgmental decisions DGF purely and narrowly mechanical

6. NBU and DGF Cooperation - FUTURE DGF performs judgmental role in resolution – Relief to the NBU from overextension in judgment – Uses specialized cost tests – Takes decisions on spending money - not only for deposit payout – Accountable for decisions and funds spent NBU maintains judgmental role in supervision – Still pulls the plug on a troubled bank – key to ultimate success Information sharing – enhanced significantly Joint teams on borderline banks

7. NBU and DGF Cooperation - FUTURE NBU recognition of the DGF as an equal highly professional partner – mutual strength – interdependence of success – benefit to the system Needless to say - full professional independence of both institutions is sin qua non for the success of the new institutional framework

8. NBU and DGF – Mutual Interest Both institutions collectively responsible for success of resolving troubled banks NBU – Motivated to see DGF succeed – as such success would vindicate NBU supervision and decision making on troubled banks DGF – motivated to see NBU succeed in supervision and calling troubled banks at a right time – as such success would mean less work to the DGF, or better outcomes in resolution

9. Overarching objective Protect depositors = Protect taxpayers