This Technical Note has been prepared by Wouter Bossu (Legal Department) and Jianping Zhou (Monetary and Capital Markets Department).
This will particularly be the case if those authorities have a policy preference for only saving the domestic part of the international banking group.
See Strauss-Kahn, Crisis Management Arrangements for a European Banking System, keynote speech at the EC Conference, Brussels May 19, 2010, and Fonteyne, Bossu, Cortavarria et al., Crisis Management and Resolution for a European Banking System, IMF Working Paper No. 10/70, on www.imf.org.
See IMF, Resolution of Cross-Border Banks - A Proposed Framework for Enhanced Coordination, 2010, p. 23-25, on www.imf.org.
In that regard, emergency liquidity assistance provided by DNB is not considered as directly involving the public purse, because the requirement that such assistance should be adequately collateralized would normally prevent the budget from suffering negative consequences in the form of either a reduced DNB dividend or the need to recapitalize DNB in case of severe losses.
The authorities were satisfied that information sharing between MOF and DNB related to crisis management was not hindered by legal obstacles. The AFS includes a general principle that confidential supervisory information cannot be shared with third parties (Article 1:89), unless the Law provides for a specific exception. Exceptions include for other supervisory authorities, curators and trustees, criminal prosecution services, and central banks. The sharing of information between DNB and the MoF has three legal bases: Article 1:42 (accountability arrangement), Art: 1:89 (that allows DNB to share information if necessary for performing its tasks”), and lastly Article. 37 of the DNB Law.
See the Technical Note on the Twin Peaks Model.
For an analysis on how an enhanced framework for macro-prudential supervision could contribute to crisis prevention: see the Technical Note on Financial Sector Supervision: the Twin Peaks Model.
Until now, DNB has been using those instruments extensively, but mainly vis-a-vis insurance firms and pension funds. The hesitation to apply them to banks has been ascribed to concerns regarding confidentiality and trust in the banks.
Divestment measures are not currently included in the early intervention powers of Article 136 of the EU Banking Directive. In the Netherlands, restructuring plans could be imposed through directions, the breach of which should be addressed by cease-and-desist orders.
Enhancing the liability threshold as advocated further in this Note would also be helpful in that regard.
However, the EU Treaty prohibits “monetary financing,” which is held to prohibit national central banks from providing liquidity support to insolvent banks.
The European Commission also has some jurisdiction over ELA provided by national central banks. In particular, it has decided that “pure” ELA (i.e., liquidity assistance to illiquid but solvent) does not fall under state aid rules, but liquidity assistance to insolvent banks would be governed and constrained by state aid rules.
See the March 2003 letter of the Minister of Finance to the Lower House, wherein the Minister takes the position that Article 8.1 of the DNB Law constitutes the legal basis for ELA by DNB.
On this issue, see IMF, An Overview of the legal, Institutional and Regulatory Framework for Bank Insolvency, 2009.
On this issue: see IMF, Resolution of Cross-Border Banks—A Proposed Framework for Enhanced Coordination, 2010, p. 23-25.
Possible legislative vehicles for such safeguards may be a new bank resolution law, a law on a bank resolution fund, or possibly even the budget law itself. In any event, if the legislative route is chosen, care should be given to balance safeguards with flexibility so as not to tie excessively the hands of the authorities when the next crisis strikes.
This may cause the transferor bank to become unviable, which should addressed by the withdrawal of the license and the bank’s subsequent liquidation.
Such rule is currently included in the AFS for trustees under the “emergency mechanism” (Article 3: 175), and should be kept going forward.
This may be useful in preserving critical components of the ailing banks by transferring them rapidly to third parties upon opening of the liquidation procedure.
It appears that the general capacities of the authorities include the powers to establish such “bridge bank.” In case there would be doubts regarding such powers, a more explicit empowerment would be useful.
Thus, the AFM could contribute to the rapid transfer to a third party of client securities, thereby limiting the contagion effect of the bank failure.
See IMF, Resolution of Cross-Border Banks—A Proposed Framework for Enhanced Coordination, 2010, p. 25-27.
The legal framework for the DGS is laid down in the Articles 3:258 et seq. of the AFS and the Royal Decree of October 12, 2006.
The recent Belgian Bank Resolution Law (Law of June 2, 2010: see Articles 3.5 and 5.5) stipulates that this willful misconduct or gross negligence must be considered by the Courts in light of “the concrete circumstances of the case, and in particular the urgency with which the resolution decisions were taken, the practices on the financial markets, the complexity of the case, the menaces for the saving system and the danger of damage to the national economy due to the failure of the bank/insurance firm concerned.”