coordinated from Danaharta and Danamodal Of course, designing the framework will not be without challenges. Looking at how we’ve dealt with crises in the past, and the domestic and international practices during these tough times, here are three lessons we’ve learnt. 1. Resolution options may be more complicated to implement than expected. For example, it took four years to complete the consolidation of the banking sector during the 1997 Asian financial crisis. 2. ‘Resolution options’ may be used in ‘recovery options’ as a preemptive measure. For example, PIDM increased the coverage of deposit insurance guarantee during the 2008 global financial crisis to improve confidence in banks and prevent the crisis from getting deeper. 3. The use of insurance deposit levies can be exended to resolution funding. Lessons learnt from the 1997 and 2008 financial crises: For example, during the 2008 global financial crisis, PIDM collected additional levies from the banks and remitted the funds to the Government for it to cover the additional guarantee.
Recovery & Resolution Planning 41 What exactly does RRP mean for Malaysia? For us, RRP encompasses a new approach to prudential regulation. It will require a different set of framework and guidelines than what regulators and FIs are familiar with, such as capital adequacy, liquidity ratio and risk management measures. The success of RRP in Malaysia will require a concerted effort from both regulators and FIs. Key considerations for Malaysia's financial community Regulators: setting clear expectations for the industry The international RRP standards and requirements will need tailoring to fit the local context. They will form the basis for the legal framework and principle guidelines which governs RRP implementation in Malaysia. The challenge here is in the details. This includes coming up with detailed guidance or scope for determining: • Triggers • Stress scenarios • Recovery options • Core business lines identification As the RRP concept is new to regulators and FIs, implementation will be an iterative process, requiring a series of discussion and refinements to reach a suitable form for the Malaysian environment. Continuous engagement between authorities and FIs will help improve the effectiveness of RRPs as “living wills". I. Roles
42 Recovery & Resolution Planning FIs: putting resilience and risk management at the forefront of decision making FIs will need to uncover what may cause them to fail and what it takes to avoid failures. This means looking at the same set of variables as the regulators – triggers, stress scenarios, core business lines – but from the FI’s own perspective. FIs will also need to have the interests of the broader stakeholders that depend on them in mind in the event that they do fail. This includes making sure that: • Creditors’, depositors’ and customers’ interests are safeguarded, • Financial intermediation services and movements of funds continue unabated, • The private sector has access to funds for working capital, investments and economic development purposes.
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- Summer '16
- Management, Bank run, financial crises