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The World Bank

The World Bank. Bank Insolvency Regime and the Global Bank Insolvency Initiative Ernesto Aguirre, Manager GBII October 26, 2004. Pillars of Bank Stability. 1. Capital . Financial resources available to leverage banking operations . (Basle Capital Accord)

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The World Bank

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  1. The World Bank Bank Insolvency Regime and the Global Bank Insolvency Initiative Ernesto Aguirre, Manager GBII October 26, 2004

  2. Pillars of Bank Stability 1. Capital. Financial resources available to leverage banking operations . (Basle Capital Accord) 2. Oversight. Banking supervision and monitoring. (Basle Core Principles) 3. Exit policies. Strategy and legal framework (GBII).

  3. Importance of the Institutional, legal and regulatory framework to deal with bank insolvency, including in the context of systemic crisis Strategy- - - - - - -Framework- - - - -Implementation

  4. Global Bank Insolvency Initiative Objectives: 1.To determine the appropriate institutional, legal and regulatory framework to deal with bank insolvency including in the context of systemic crises (the Framework) 2. To, progressively, create an international consensus regarding the framework, including best practices and alternatives to deal with bank insolvency.

  5. Global Bank Insolvency Initiative Objectives: • To design a methodology for the assesment of the countries’ institutional, legal and regulatory framework to deal with bank insolvency, and • To facilitate the provision of technical assistance to countries for the improvement of their “framework”.

  6. The Process: creation of an international consensus • GBII Main Activities Participant institutions: WB, IMF, BIS:BCBS, IFI, under FSF. + Regional dev. Banks. • 3 Global Seminars • Regional seminars (consultation and dissemination) • CCG. • Interaction with other international groups and task forces: Weak Banks, G-10, UNCITRAL, reform of Basle Core Principles, etc. 5. Board Review. Future activities

  7. Basic Scope • Institutional aspects • Bank’s official administration • Bank restructuring and resolution • Bank Liquidation • Legal framework for systemic crises

  8. Institutional Aspects -Legal Mandate: Precise and comprehensive. No gaps or duplications Explicit mechanism for dispute resolution And provide for: -Autonomous decision making -Inter agency coordination

  9. Autonomy of Banking Authorities 1- No government interference in day to day decisions and operations 2- Appointment and dismissal conditions (security of tenure) 3- Separate budget. Flexibility in use of FR. 4- Insulation from market participants pressure.

  10. Inter-agency coordination 1- Legal basis for coordination and exchange of information (inter-agency disclosure overrides secrecy laws) 2- Includes: Central bank (payments system), dep. insurer (rest. agency), other regulators -Conglomerates - Foreign regulators (MoU)

  11. Legal Protection for Banking Authorities Balanced by the need to protect the rights of third parties involved: -Accountability. -Judicial Review Elements of protection: - Prot. from civil liability other than in cases of intentional wrongdoing -Immunity from liability when discharging their official responsibilities within limits of Law - Vicarious liability for agency - Full legal assistance for individual’s defense

  12. Accountability and legal review • Concept of accountability different from the concept in the CB context. • Accountability mechanisms seek to ensure that banking authorities act within their legal mandate, but should not aim at substituting the authorities policy decisions on technical grounds. • Balance: expediency of required actions vs protection of rights. Revocation vs Compensation.

  13. Beyond the Legal Framework • Financial sector crises • Crises of the general economic framework • Crises involving the institutional framework • Judicial system • Enforcement capabilities • Other issues

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