12th Annual Seminar on Policy Ch ll f th Fi i l S tChallenges for the Financial Sector

Session 1: Developing Effective CrossSession 1: Developing Effective Cross-border Resolution Frameworks

Francisco SilveiraBanco Central do Brasil

Washington, DC – June, 2012

Disclaimer

This presentation represents the view of the author andd t il fl t th C t l B k f B il’does not necessarily reflect the Central Bank of Brazil’sviews or policies. The views expressed herein should beattributed to the author and not to the Central Bank ofBrazil or to its Board of Directors.

The new resolution framework presented is a proposeddraft that has not yet been approved by the Board ofGovernors of the Central Bank of Brazil or by the BrazilianGovernors of the Central Bank of Brazil or by the BrazilianNational Congress. Therefore its terms may change.

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Agenda

• Brazilian Financial SystemBrazilian Financial System

• Central Bank of Brazil (BCB) and the Safety Net

• Current resolution framework

• Structure of the proposed new frameworkp p

• Alignment to the Key Attributes

• Final remarks

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Brazilian Financial System 1/

Regulatory EntitiesSupervisory

Financial Market ParticipantsRegulatory EntitiesEntities

Financial Market Participants

Central Bank of BrazilFinancial

Other financial institutions

National Monetary Council (CMN)

Central Bank of Brazil(BCB)

institutions taking demand deposits Foreign exchange

banks Other financial intermediaries and

entities administering financial assets of third parties

Securities and Exchange Commission (CVM)

Commodities and futures exchanges

Stock exchanges

P i t I E titi tiNational Council for

Private Insurance (CNSP)

Private Insurance Superintendence

(SUSEP)

Reinsurance Companies

Insurance companies

Capitalization companies

Entities operating private open

pension funds

41/ http://www.bcb.gov.br/?COMPOSITION

Institutional Mission

To ensure the stability of the currency'sy ypurchasing power and a solid and efficientfinancial system.y

Monetary policy and other CB

Supervision of the

Financial

Resolution of Financial Institutions

BCBfunctions System Institutions

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Fundo Garantidor de Créditos (FGC) 1/

The FGC is a private organization and its objectives are toprotect small account holders and to contribute to:protect small account holders and to contribute to:

a. the stability of the National Financial System

b the prevention of banking crisesb. the prevention of banking crises

Paybox Stabilization FGCPaybox Fund FGC

61/ Credit Guarantee Fund (FGC)

The Safety Net

Narrowdefinition

Broader definition

BCB

definition

CVMS BCB

S f t

CVMSusep

Safety Net

FGC

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Cooperation Among Supervisory Authorities

BCB CVM Susep

COREMEC 1/

81/ Committee of Regulation and Supervision of the Financial, Capital,

Insurance, Pension and Capitalization Markets

Cooperation Among Authorities in Resolution

The legal competencies of the BCB and Susep as resolution authorities and the role of the FGC as deposit insurer are clearly defined and coordinated

Susep

• Insurance companies• Other regulated entities

BCBFGC BCB

• Banks• Other regulated entities

FGC

• Paybox• Stabilization fund

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g

Synergies Between Supervision and Resolution

Info D i i

Available resourcesTiming

No secrecy concerns

No MoU

Shared info Info. sharing

Decision making

Systemic risk

Shared info. systems

Difis and

Synergy

Difis and Diorf as

substitutes

Board of Directors

A single mission

One tone from the top

Alignment

Same b l

Corporate l

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vocabulary culture

The Enactment Process of a Resolution

Board Resolution

• Proposes• Proposes• Decides• Decides

Board

• Decrees• Decrees• Carries on• Carries on

Resolution

Supervision Governor

• The whole BCB is involved in the resolution processp

• All different views are considered in decision making

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Current Resolution Framework at a Glance

• Financial institutions are not subject to the bankruptcy law.• The BCB is the resolution authority for financial institutions• The BCB is the resolution authority for financial institutions

(insurance companies are under SUSEP’s resolution process).• The BCB has powers to extend the regimes to legal entities within

th i l di l t d titi t fthe same group, including unregulated entities, except forinsurance companies.

• The decree of a resolution regime leads to an investigation into theg gresponsibilities of controlling shareholders and seniormanagement.

• Resolution regime Apply to foreign controlled institutionsResolution regime Apply to foreign controlled institutions.• Resolution regime does not apply to constituents of the FMI and

deposit guarantee funds.

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Three Types of Special Resolution Regimes

Temporary Special Administration

Regime (RAET)

Intervention

Extrajudicial liquidation

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Structure of the Proposed New Framework (1)

Main driverIs there

systemic risk?

Modalities of special

y

Special Administration I t ti

presolution regimes

pRegime (SAR)

Intervention

Main objectives Mitigate risks to financial stability

Interrupt activities and prepare for bankruptcy

Use of deposit guarantee scheme

Equalization of assets and liabilities

Payout of creditors

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Structure of the Proposed New Framework (2)

Powers and tools SAR Intervention

• Assets and liabilities transfer

• Good bank/bad bank

• Bridge bank

• Bail-in within resolution (new power)

• Special financial assistance operations (new power)

Special financial assistance operations demands previousloss absorption or capitalization through bail-in withinresolution (no bail-out before bail-in)

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Alignment to the Key AttributesMain gaps

KA Gap New Framework

Scope (KA 1.2) FMI constituents are not subject to the banking resolution regime

FMI constituents will be subject to special resolution regimes

Bail-in (KA 3.2.ix; 3.5 and 3.6)

No current bail-in power. It will be provided.

Temporary stay (KA 3.2.x; 4.3 d 4 4)

No discretion to determine th t d ti

It will be provided (limited to 5 d i SAR)and 4.4) the stay duration 5 days in a SAR)

Flexibility to depart from the equal treatment of creditors (KA 5 1)

No legal provision to depart It will be provided.

(KA 5.1)

Power to require changes to a firm’s structure or organization (KA 10.5)

The power to require is limited to some conditions.

A specific BCB team is working to identify the best way to promote compliance

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g ( ) y p pwith this attribute

Final Remarks

• Key success factors for synergy in resolution: encompass central bank, supervisory and resolution authority in

th t i t t t d t bilit li ithe same agency to integrate monetary and stability policies

although aligned with the resolution authority, the deposit insurer must be insulated from undue public and private influencep p

all players must work together to constitute a sound safety net

• Alignment to Key Attributes (KA):g y ( ) compliance with KA demands true commitment

despite the cost, it is worth implementing KA

• Bail-in within resolution: there are still some concerns over this resolution tool

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as it is not an end in itself, other tools may lead to the same result

Thank you!Thank you!

Francisco Silveira

Head of DivisionDepartment of Supervision of Banks and Banking Conglomerates

Central Bank of BrazilCentral Bank of Brazil

fco.silveira@bcb.gov.br

+55 11 3491-6247

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