Appendix I. Examples of Recovery and Resolution Plans (Financial Stability Board, United Kingdom, United States, and the European Union)
This Technical Note has been prepared by Alessandro Gullo, IMF.
The concept of ELA is referred to in this note with the same meaning attributed to the wording “lender of last resort,” which is used in the English translation of the NBG Law.
NBG staff notes that the taking of collateral is legally perfected upon the disbursement of the ELA rather than after a time lag. This practice is important to avoid leaving the NBG claims uncollateralized in case the borrowing bank becomes insolvent after the ELA has been provided.
See Article 239, paragraph 2, of the Tax Code: “The entitlement to the registration of tax lien/mortgage shall emerge simultaneously with the emergence of the tax debt and from the instance of registration at a registration body and shall be applicable within the range of the tax debt on the property (with the exception of that received under leasing) owned by and/or recorded on the books of a person, including the property acquired following the emergence of tax arrears.”
On the best practices regarding legal remedies and judicial action, see the KSB Key Attributes 5.4 and 5.5.
The possibility to take control of a problem bank and resolve it when there is still positive equity should be assessed in light of possible constitutional constraints, both in terms of substantive and procedural requirements, given the possible qualification of such actions as “expropriation.” As a general matter, it should be noted that constitutional provisions, while protecting property rights, often allow for the taking of property when a public interest arises, and provided that certain safeguards (e.g., compensation) are in place. In particular, Article 21 provides that the deprivation of property rights shall be permissible for pressing social needs in the cases determined by law and in accordance with a procedure established by law, and only with appropriate compensation.
See the FSB “Key Attributes of Effective Resolution Regimes for Financial Institutions” (particularly, the Preamble and Key Attribute 2), as well as the recently approved EU Directive on bank recovery and resolution (Directive 2014/59), and particularly Articles 31 and 34.
See paragraphs 35 and 41 below.
See Sections on Deposit Insurance and Domestic and Cross-Border Arrangements, respectively, for a discussion on the DIS and on crisis preparedness and management arrangements.
For a more detailed analysis, see in general the Financial System Stability Assessment.
In theory, one option would be to distinguish between deposits in local and foreign currency, introducing the coverage only for the former category. In a way, this would amount to a macro-prudential instrument put in place to foster de-dollarization. However, a number of arguments may weigh against this option. In particular, a differential coverage may discourage savings from low-income individuals and may possibly raise issues in terms of the envisaged approximation of the Georgian legislation to the EU law.
See also “Core Principles for Effective Deposit Insurance Systems,” Basel Committee on Banking Supervision and International Association of Deposit Insurers, June 2009.
In a technical assistance report dated April 2014, the World Bank considers that, based on the updated banking sector deposits data as of February 28, 2014, the deposit insurance coverage amount of GEL 5,000 per individual depositor per bank would be sufficient to provide 100 percent insurance for 96.64 percent of all individual depositors and 20.91 percent of their deposited amount. This would meet the above-mentioned 80/20 rule.
As noted above, an MOU was signed subsequent to the mission.
While being a useful initiative, the signing of a memorandum of understanding between the MOF and the NBG does not eliminate the need for enshrining cooperation duties also at the level of the primary law.
See the FSB “Key Attributes of Effective Resolution Regimes for Financial Institutions”, n.7.