NBU and DGF in the Crossroad of the Reform Marius Vismantas Country Sector Coordinator, Financial...
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Transcript of NBU and DGF in the Crossroad of the Reform Marius Vismantas Country Sector Coordinator, Financial...
NBU and DGF in the Crossroad of the Reform
Marius VismantasCountry 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
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
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
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
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
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
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
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
Overarching objective
Protect depositors =
Protect taxpayers