Bank Resolution Lessons from the Financial Crisis: Insights from the Deposit Insurance Agency in Russia

1. Lessons from the Financial Crisis for Bank Resolution: RussiaNikolay Evstratenko, DIA Russia Role of Deposit Insurance in Bank Resolution Framework – Lessons from the Financial Crisis November 13-16, 2011 JODHPUR, INDIA

2. Key Events • 2004 (January) – Establishment of Deposit Insurance Agency (DIA) (pay-box) • 2004 (August) – Function of liquidation of failed banks • 2008 (October) – Function of prevention of bank failures (systemically important banks)

3. Deposit Insurance • In October 2008 the DI coverage was increased from 400,000 rubles to 700,000 rubles • Coinsurance was abolished • DI premium rate was decreased (liquidity support) • Payouts to insured depositors start within 14 days after banking license withdrawal by the Bank of Russia

4. Deposit Insurance: Figures • Total amount of insured deposits – 9798 billion rubles (≈ US$320 billion) • Number of DIS member banks – 903 • Deposit Insurance Fund – 146 billion rubles (≈ US$4.9 billion) • Insurance coverage limit per depositor per bank – 700,000 rubles. (≈ US$23 thousand) • Number of insured events – 114 (58 in 2008-2009) • Total number of depositors of failed banks that received deposit insurance reimbursement > 350 thousand • Total amount of insured deposits in failed banks – 58 billion rubles (≈US$1.9 billion)

5. Liquidation of Failed Banks • Central Bank: • revokes banking license, • appoints provisional administration, • applies to the court to declare the bank insolvent/inviable The court appoints DIA a liquidator/receiver of the failed bank DIA as the receiver is accountable to the court, Central Bank and bank creditors

6. Liquidation of Failed Banks: Main Tasks of DIA as Receiver Development and approval of business plan and budget of receivership Inventory and appraisal of the bank’s property, collection/liquidation of its assets Verification and acceptance of creditor claims, preparation of the register of creditor claims, settlements with creditors Publications and progress reports on the course of receivership Investigations and Litigations

7. Liquidation of Failed Banks: Figures DIA has been appointed as receiver in 271 banks • Completed liquidation proceedings - 161 banks • Going on liquidation proceedings – 110 banks

8. Prevention of Bank Failures: Conditions The Agency participates in prevention of bankruptcy of a bank in case of: • Systemic importance of a failing bank for the national economy in general or for a particular region • Social importance of a bank • Cost-effectiveness for the Deposit Insurance Fund of financial rehabilitation in comparison to bankruptcy proceedings

9. Prevention of Bank Failures: Tools Available for the Agency • Organizational assistance (e.g. in finding a potential private investor for a failing bank) • Financial assistance (e.g. providing monetary resources (secured loans) to new investor(s), purchasing assets in the course of bank rehabilitation, capital injection (solely or together with investors)) • Transfer of a failing bank’s assets and liabilities to a sound bank (purchase and assumption)

10. Prevention of Bank Failures: Figures Banks where the Agency participated in bankruptcy prevention measures: 19 - Financial assistance to investors that purchased majority stake in a failing bank 14 - Banks in which the Agency became the sole shareholder 2 - Purchase & Assumption (partial) 3 • Completed Projects 12

11. Prevention of Bank Failures: Sources of Funding • Private Investors’ Resources • Special Government Property Contribution (200 billion Rubles ≈ US$6.5 billion) • The Bank of Russia loans • The Deposit Insurance Fund

12. Key Lessons from the Crisis (1) The deposit insurer needs (should have): • Independence • Ability to respond quickly • Mechanism to promptly reimburse depositors • Access to financial data • Legal protection from lawsuits in the normal course of business • Close, prompt and effective interactions with other safety-net participants • Access to adequate funding (primary and secondary sources) • Public awareness of and confidence in the deposit insurance system

13. Key Lessons from the Crisis (2) Key features of resolution regime that help the deposit insurer to meet its objectives: • Special resolution regime for banks (financial institutions) • Designated resolution authority responsible for exercising resolution powers – timely and early • Recovery and resolution planning • Effective failure resolution tools both for preventing bank failures (such as bail-in mechanisms, living wills) and for resolving failed banks (including P&A, bridge-bank, assisted mergers, capital injections, etc.) • Mechanism for information sharing among safety-net participants at all stages of planning and implementation of recovery and resolution measures

14. Thank you! Deposit Insurance Agency Moscow, Russia www.asv.org.ru