The following will be discussed in this chapter: Corrective actions for weak banks, general principles for corrective action, guiding principles for banks resolution policy, resolution techniques, conclusion: dealing with weak banks. | MBF-705 LEGAL AND REGULATORY ASPECTS OF BANKING SUPERVISION OSMAN BIN SAIF Session: TWENTY TWO Summary of Previous Session Foundations of a Sound supervisory system Supervisory Powers Institutional pre-conditions for dealing with weak banks Identification of weak Banks Supervision Methods for identification of weak banks 2 Agenda of this Session Corrective actions for weak Banks General principles for corrective action Guiding principles for banks resolution policy Resolution techniques Conclusion: Dealing with Weak Banks 3 Corrective actions for weak Banks Corrective actions are those actions required to deal with deficiencies and change behaviour in a weak bank. They can be implemented voluntarily by the bank under the supervisor’s informal oversight or, if necessary, via formal supervisory intervention. 4 Corrective actions for weak Banks (Contd.) Resolution techniques, are those that are employed when failure is imminent and will typically involve stronger supervisory intervention | MBF-705 LEGAL AND REGULATORY ASPECTS OF BANKING SUPERVISION OSMAN BIN SAIF Session: TWENTY TWO Summary of Previous Session Foundations of a Sound supervisory system Supervisory Powers Institutional pre-conditions for dealing with weak banks Identification of weak Banks Supervision Methods for identification of weak banks 2 Agenda of this Session Corrective actions for weak Banks General principles for corrective action Guiding principles for banks resolution policy Resolution techniques Conclusion: Dealing with Weak Banks 3 Corrective actions for weak Banks Corrective actions are those actions required to deal with deficiencies and change behaviour in a weak bank. They can be implemented voluntarily by the bank under the supervisor’s informal oversight or, if necessary, via formal supervisory intervention. 4 Corrective actions for weak Banks (Contd.) Resolution techniques, are those that are employed when failure is imminent and will typically involve stronger supervisory intervention and some change to the legal structure and ownership of the bank. 5 Corrective actions for weak Banks (Contd.) Under normal circumstances, it is the responsibility of the Board of Directors and senior management of the bank, and not of the supervisor, to determine how the bank should solve its problems. 6 Corrective actions for weak Banks (Contd.) However, should the bank engage in unsound banking practices or breach statutory or other key supervisory requirements, for example, capital adequacy and liquidity requirements, the supervisor should have powers to compel the bank to take necessary remedial action – and a statutory responsibility to ensure that the remedial action taken is appropriate. 7 Corrective actions for weak Banks (Contd.) The role of the supervisor is to guide and steer the bank in its rehabilitation. This is consistent with the widely shared supervisory objectives of financial stability, minimum disruption to depositors and other bank counterparties and in many .
