cross border bank insolvency
TRANSCRIPT
Cross-Border Bank Insolvency:A Few Lessons Learned
Mark Carawan
Sixth Annual International Seminar on Policy Challenges for the Financial Sector
Cross-Border Supervisory Cooperation – Issues and Challenges
Washington, D.C., 7 – 9 2006
8 June 2006
Cross-Border Bank InsolvencyBank Insolvency in Perspective: Unique Landscapes by Jurisdiction• Political environment
• Governance practices
• Business practices and related party transactions
• Legislation and practice: property, foreclosure, bankruptcy
• Regulatory agency role, independence, empowerment, resources
• Independence of the judiciary
• Pressures to achieve a least cost solution
• Market discipline
• Transparent, autonomous, empowered entities: embracing (generally) twelve guidelines.
Cross-Border Bank Insolvency
OBJECTIVES OF TODAY’S PRESENTATION
• Briefly review the generic structured approach to managing the bank insolvency process for a given jurisdiction.
• Consider at each stage the potential cross-border challenges and pitfalls leading up to and during the bank insolvency process.
Cross-Border Bank Insolvency
Generic Methodology
• Strategy and Policy Setting
• Design and Development
• Assessment
• Implementation
• Restructuring, Recovery, Liquidation
Cross-Border Bank Insolvency
Strategy and Policy Setting Restructuring / Recovery/Liquidation
ImplementationDesign and Development Assessment
Public Relations
Legal, Regulatory and Policy
Interagency Co-ordination
International Co-ordination
Asset Disposition
Asset Management
Institutional Preparation
Strategy
Master Plan Confirmation Valuation
Self-Rehabilitation
Restructuring Support
Liquidity Support
Condition Satisfactory
Closure and Liquidation
Restructuring Scenarios
Normal Supervision
Assessment
Financial Institution
Rehabilitation
Financial Institution
Resolution / Restructuring
Management Support
Cross-Border Bank Insolvency
Strategy and Policy Setting
• Resolution strategy approach aims to:– identify potential liquidity, solvency and management issues early– anticipate and resolve policy issues– provide flexibility to the responsible government authorities– define and communicate viable, credible plan, avoiding crisis
management– segment “potentially troubled” and “troubled” authorized
institutions according to areas of risk – rehabilitate and restructure vs. resolution and liquidation
Institutional Preparation
Strategy
Master Plan Confirmatio
n
Cross-Border Bank Insolvency
Master Plan Confirmation
• Building consensus across the jurisdiction’s relevant authorities
• Flexibility for policy makers
• Reduce overall costs by avoiding reactive measures
• Consider international interfaces
• Establish political credibility (domestically and internationally)
Institutional Preparation
Strategy
Master Plan Confirmatio
n
Cross-Border Bank Insolvency
Institutional Preparation
• Methodology and Tools framework
– Instructions and Formats for management– Financial Model– Economic and Financial Assumptions approach– Training
• Framework for Instructions: reporting accountants and advisors
– Asset Quality– Liquidity– Capital Adequacy– RP Validation by RA
• Framework for resolution and insolvency managers
• Project Team Identification
Institutional Preparation
Strategy
Master Plan Confirmatio
n
Cross-Border Bank Insolvency
Financial Institution Rehabilitation
FI Resolution/Restructuring
Asset Management
Asset Disposition
Valuation
Legal, Regulatory and Policy
Interagency Co-ordination
Public Relations
Institutional Strengthening: Design and Development
Public Relations
Legal, Regulatory and
Policy
Interagency Co-ordination
International Co-ordination
Asset Disposition
Asset Management
Valuation
Financial Institution
Rehabilitation
FI Resolution/Restructuring
Cross-Border Bank Insolvency
Institutional Strengthening: Design and Development
Least Cost Analysis Factors (Illustration)
Bailout
Assisted Mergers
Recapitalization and sale
Restructuring plan
Liquidation and depositorpayoff
More bullet points represent anticipated better outcomes
SpeedFiscalCost
Incentives forbank
performance
Confidencein banking
system
Cross-Border Bank Insolvency
Valuation Board (VB)
• Prepare detailed Terms of Reference, appointment documents and reporting procedures
• Identify and secure VB members
• Perform pre-selection procurement for VB subcontracted experts
• Confirm Asset Disposition Function(s) and Asset Management Company(ies) valuation related processes and procedures.
Institutional Strengthening: Design and Development
Public Relations
Legal, Regulatory and
Policy
Interagency Co-ordination
International Co-ordination
Asset Disposition
Asset Management
Valuation
Financial Institution
Rehabilitation
FI Resolution/Restructuring
Cross-Border Bank Insolvency
Legal, Regulatory and Policy
• Moratoria or Stays of Action against legal proceedings
• Outsourcing, partnership and franchise issues
• Transfer of business issues
• Insurance
• Asset Management Company establishment
• Protection of depositors vs other creditors and shareholders
Institutional Strengthening: Design and Development
Public Relations
Legal, Regulatory and
Policy
Interagency Co-ordination
International Co-ordination
Asset Disposition
Asset Management
Valuation
Financial Institution
Rehabilitation
FI Resolution/Restructuring
Cross-Border Bank Insolvency
Interagency Coordination
• Confirm appropriateness of existing Memoranda of Understanding (MOUs)
• Determine requirement to redraft existing MOUs and create new MOUs
• Responsibility, Accountability, Consultation, Information
• Decision rights
Institutional Strengthening: Design and Development
Public Relations
Legal, Regulatory and
Policy
Interagency Co-ordination
International Co-ordination
Asset Disposition
Asset Management
Valuation
Financial Institution
Rehabilitation
FI Resolution/Restructuring
Cross-Border Bank Insolvency
International Coordination
• Create and appoint a Private Sector Liaison Team
• Create and appoint a Regulatory Liaison Team
• Design and develop operating policies and procedures
• Establish (as appropriate) communication channels
Institutional Strengthening: Design and Development
Public Relations
Legal, Regulatory and
Policy
Interagency Co-ordination
International Co-ordination
Asset Disposition
Asset Management
Valuation
Financial Institution
Rehabilitation
FI Resolution/Restructuring
Cross-Border Bank Insolvency
Public Relations
• PR involvement should commence immediately, with all other design and development areas
• Scenarios and PR input should be anticipated and prepared from the start, e.g.:– “Run” on AI and provision of liquidity support – Pre-emptive overseas regulator actions– Appointment of Manager to run AI– Process descriptions: RP, Modeling, Valuation of
Assets, etc.– Entity/Function descriptions: asset management
company, asset disposition function, etc.• Test contingency plan for PR
Institutional Strengthening: Design and Development
Public Relations
Legal, Regulatory and
Policy
Interagency Co-ordination
International Co-ordination
Asset Disposition
Asset Management
Valuation
Financial Institution
Rehabilitation
FI Resolution/Restructuring
Cross-Border Bank Insolvency
Public Relations Program - Overview
Press Conference(s)
InvestorConference(s)
EducationalRoundtables
Seminars
Booklets
Website
Opinion Articles& Editorial
Newspapers
DATABASE
Other
Feedback
Research*
*including surveys
CRISIS MANAGEMENT CONTINGENCY PLAN
Identify Trigger Points
Identify
Vehicle
Formulate
message &
Identify Audienc
e
IdentifySpokespers
on
Prepare Spokespers
on
Cross-Border Bank Insolvency
Assessment of Authorized Institutions
• Segmentation of Authorized Institutions (AIs)
• Rehabilitation Planning (RP) Process (by AIs)
• RP Reviews and Analysis
• Reporting Accountant (RA) Verification and Validation
• RP Robustness: Individual, Peer Group and Sectoral Stress Tests
• Summary Reporting and Decision Process
• Notification and Intervention Actions
• Cross border comparability and validation challenges
Assessment
Assessment
Cross-Border Bank Insolvency
Implementation
Co-ordination
Communication
Consistency
Concurrence
Self-Rehabilitation
Restructuring Support
Liquidity Support
Condition Satisfactory
Management Support
Cross-Border Bank InsolvencyRestructuring: Rehabilitation and Resolution
General insolvency law vs. special legislation for banks
Auction vs. structured sales
Standard court system vs. specialist court system
Value creating vs. value destroying
Value preservation vs. value deterioration
Closure and Liquidation
Restructuring Scenarios
Normal Supervision
Cross-Border Bank Insolvency
Restructuring Scenarios (illustrative components)
• Collections and recoveries on assets
• Settlement of creditors
• Core asset sales to market or AMC
• Non-core asset sales to market
• Closure or discontinuance of distribution outlets
• Operational cost reduction (including selected outsourcing)
• Divestiture of portions of business
• Merger
• Identification and securing of new financing (capital and/or debt)
Restructuring: Rehabilitation and Resolution
Closure
Restructuring Scenarios
Normal Supervision
Cross-Border Bank Insolvency
Questions?
Cross-Border Bank Insolvency
Thank you!