Public support for bank resolution

Overview

Bank resolution is essential for maintaining financial stability by preserving the critical functions of failing banks. Public support is sometimes necessary to enhance a bank's internal resources and industry-sourced funds.

Key Insights

• Credible Funding: Public support should be credibly funded and used only as a last resort when a failing bank poses systemic risk.
• Recoupment Policies: Jurisdictions should have codified policies to recoup public support used in bank resolutions.
• Governance Arrangements: Adequate governance is crucial to maintain the social legitimacy of public interventions.
• Flexibility: While safeguards are necessary, flexibility in providing support is crucial to manage systemic risks.

Why It Matters

This matters for the banking sector as it ensures financial stability and minimizes adverse social costs during bank resolutions.

Actionable Implications

• Develop and implement policies for recouping public support.
• Establish governance frameworks to maintain legitimacy.
• Ensure flexibility in support mechanisms to address systemic risks.