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NBU and DGF in the Crossroad of the Reform

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.

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NBU and DGF in the Crossroad of the Reform

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  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 • Calls 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 • Calls 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

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