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LJD

LJD. LAW, JUSTICE and Development week 2011 INNOVATION AND EMPOWERMENT FOR DEVELOPMENT November 14-17, 2011 Washington DC. LAW JUSTICE and DEVELOPMENT. In the Wake of the Crisis. Monica Marcucci, Senior legal Counsel - Marino Perassi, General Counsel Banca d’Italia – Bank of Italy

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LJD

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  1. LJD LAW, JUSTICE and Development week 2011INNOVATION AND EMPOWERMENTFOR DEVELOPMENTNovember 14-17, 2011 Washington DC LAW JUSTICE and DEVELOPMENT

  2. In the Wake of the Crisis Monica Marcucci, Senior legal Counsel - Marino Perassi, General Counsel Banca d’Italia – Bank of Italy From Challenges to Change: a new regulatory landscape in the cross-border scenario ? World Bank. November 14th, 2011 – Washington D.C. LJD WEEK 2011 INNOVATION AND EMPOWERMENT FOR DEVELOPMENT

  3. Preliminary remarks • Lessons from the financial turmoil • Complexity of the financial environment / interdependence among the distress of financial entities and the soundness of the banking sector • Role of SIFIs and cross-border groups. Multiple jurisdictions/regulatory inconsistencies. Need for a more integrated response by the public sector • Two main areas of interest: • Setting adequate tools to deal with the crisis of cross-border groups • Dealing with the linkage among the distress of financial institutions and the crisis of sovereign debtors • Work in progress • Suggestions from the European experience; adequate public response to be built upon a significant transfer of sovereignty • In the international environment the challenge is harder. Implementation of soft law rules / shift towards a more structured framework? LJD WEEK 2011 INNOVATION AND EMPOWERMENT FOR DEVELOPMENT

  4. Banking Cross-Border Groups in Distressa) harmonization • Addressing the insolvency of banking cross-border groups requires the establishment of a set of common rules. • Banking activity heavily regulated at national level • Harmonisation of national rules necessary to promote coordination and achieve orderly management of cross-border crises • Harmonizing substantive rules is less important/too sensitive • Strong need for a common set of resolution tools at disposal of the authorities LJD WEEK 2011 INNOVATION AND EMPOWERMENT FOR DEVELOPMENT 4

  5. Banking Cross-Border Groups in Distressa) harmonization • The EU initiative: Setting up a new framework for the management of bank crises • Objectives: ensuring an orderly management of distress; reducing moral hazard • Tools: preventative measures; resolution tools (bail-in; partial transfers of assets; bridge-bank; bad bank; special management); resolution funds • Legislative proposal by the end of 2011 LJD WEEK 2011 INNOVATION AND EMPOWERMENT FOR DEVELOPMENT 5

  6. Banking Cross-Border Groups in Distressa) harmonization The International dimension: new guidelines and principles to pursue regulatory convergence Initiatives under way from international institutions/committees (FSB, G20, BCBS, IMF) Strong political commitment (role of the FSB); are the States ready to surrender sovereignty ? The FSB Key Attributes is a promising step … … but still soft law Any room for a model law?

  7. Banking Cross-Border Groups in Distressb) coordination Management of cross-border crises requires adequate channels for cooperation Any cross-border failure involves the intervention of public authorities (supervisors; courts) Intervention to be based on well defined rules, taking the group dimension as a point of reference Need to regulate ex ante the treatment of the group entities and the interaction among different authorities/jurisdictions The role of Group-wide resolution plans

  8. Banking Cross-Border Groups in Distressb) coordination The EU approach: a too timid one? No definition of groups under the current framework (the winding-up directive; the Insolvency Regulation) A well established cooperative framework for supervision over groups Addressing systemic risk would require a systemic approach at least for highly integrated groups (centralization?) The EU Commission seems to stay on the safe ground of cooperation and establishment of resolution colleges A more ambitious solution could be based upon the leadership of a leading authority/single jurisdiction

  9. Banking Cross-Border Groups in Distressb) coordination The International cooperation In the absence of a common institutional framework, cooperation is difficult to achieve Importance of Living Wills reflecting the group structure and the geographical articulation of a group The UNCITRAL recommendations as a useful benchmark to enable cooperation among parallel proceedings Cooperation agreements among supervisors; protocols for cooperation among courts

  10. Banks in Distress and Sovereign Debtors Crises How to weaken the linkage between bank insolvencies and excessive sovereign debt Establishing appropriate mechanisms to prevent moral hazard and confidence of private investors in bail-out by public finance is a pre-condition Setting up suitable tools for coordinated action by public finances is also of utmost importance Need for Intergovernmental agreements on burden-sharing In a well-designed burden sharing system, each country’s contribution to the costs would be aligned with that country’s benefits

  11. Banks in Distress and Sovereign Debtors Crises The EU lesson and the shortcomings of the Lisbon Treaty. In the realm of public support no adequate rule in the Treaty and the response to bank distress, even in the case of cross-border groups, cannot be but national The Treaty provides very tough and restrictive rules on the Central Banks/ECB/Eurosystem intervention (ELA-LoLR-SMP) The European response to face sovereign debtors’ crises came late and was based on ad-hoc inter-governmental interventions (e.g. EFSF ) and amendment to the Treaty is envisaged without any transfer of sovereignty (ESM)

  12. Banks in Distress and Sovereign Debtors Crises What future in Europe? The excessive deficit of sovereign debtor may now come back as a revenge on the banking sector, also in the countries where no financial aid was granted by the State Need for effective tools to manage the insolvency of sovereign debtors and their spill-over effects on banks’ stability, including precautionary measures The recent amendments to the EFSF are in the right direction: increasing flexibility (based on appropriate conditionality); easing recapitalisations of financial institutions (loans to governments)

  13. Banks in Distress and Sovereign Debtors Crises What future in the global scenario? Mechanisms to assist States in case of tension in their public finances are in place. The issue now is whether and how they can be improved. More flexibility? A more ambitious, but still crucial step, would be the introduction of a set of rules to regulate the sovereign debtors insolvency, and the set-up of authorities entrusted with dispute resolution competence in this field Need to separate responsibilities concerning financing, rule- setting and enforcement. A sovereign debt tribunal?

  14. Thank you! Banca d’Italia – Consulenza Legale - Legal Department – November 2011 LJD WEEK 2011 INNOVATION AND EMPOWERMENT FOR DEVELOPMENT

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