Funding of Banks in Resolution

Abstract

There is a number of challenges in the process of development of solid capabilities facilitating the implementation of the funding strategy in resolution process. They include: an assessment of liquidity needs, policy of information disclosure, financial needs monitoring and reporting, legal risk, central banks’ diverging policies, lack of consistency in supervisory authorities’ expectations and cross border agreements. Regarding liquidity requirements assessment in resolution, there needs to be: clarity of ordinary and extraordinary central bank’s support instruments, an understanding of structural changes in the banking sector and the mechanisms of market liquidity risk, and banks’ internal controls. There are many challenges to the mobilisation of assets to be used as a collateral, particularly regarding private sector founding sources. They include: systemic risk, scarce private financing, lack of assets’ eligibility, assets’ concentration. A remedy to those obstacles could be public sector funding. This would require: proper information policy, access to unencumbered assets, the monitoring and frequent valuation of those assets in market stress environment. Private investor test should be ensured to avoid illegal public aid. Additional actions to be taken by G-SIBs and relevant authorities supporting the development and implementation of funding plans comprise: mitigation of credit risk, PR, prompt access to critical data, monitoring of changes of local jurisdictions, transparent resolution plans, conservative assumptions to loss of funds. Other element of funding strategy that shall be considered is the liquidity of host country operations. Saving the problem entity is the overarching goal and it shall be properly communicated to the financial sector.