The Central Deposit Insurance Corporation Taiwan (CDIC Taiwan) hosted the Asia-Pacific Regional Committee (APRC) Technical Assistance virtual Workshop of the International Association of Deposit Insurers (IADI) on 8 - 9 December 2021 on the theme of Resolution Issues in New-normal Times: Cooperation and Coordination in Handling Resolution of Troubled Banks during Pandemic / Global Warming. The CDIC invited distinguished speakers, Mr. Yury Isaev, Chair of the Executive Council of the IADI and President of Deposit Insurance Agency (DIA) Russia as well as chairmen, chief executive officers and high ranking officials of deposit insurers from Japan, Korea, U.S.A., Canada, France and Malaysia. About 200 attendees from over 30 jurisdictions in Asia, Europe, America and Africa logged in the electronic conference platform to participate in the event. The representatives of Taiwan’s financial safety net members also joined the two-day Workshop.
Welcome Remarks
The IADI APRC Acting Chairperson Mr. Roberto B. Tan delivered his sincere welcome to all the attendees participating in the Workshop as well as his appreciations to the CDIC Taiwan for hosting the event. He praised that the Workshop’s theme matched perfectly to the current focal affairs, so attendees could have a chance to learn of contingency measures taken by deposit insurers in response to the impacts of the COVID-19 pandemic and climate-related changes.
Opening Remarks
Dr. Norman H. Chu, Chairman of the CDIC Taiwan, then listed the CDIC Taiwan’s enhancement measures taken to respond to impacts of the COVID-19 pandemic, such as strengthening of the resolution mechanism, full implementation of the business continuity plan, expansion of simulation exercise of the payout and fund management of the IT systems as well as a request to the domestic systemically important banks to report contingency plans for business crisis. Furthermore, he indicated incorporation of factors relating to global warming and climate changes into the CDIC Taiwan’s business operations as the recent strategies.
Dr. Tien-Mu Huang, Chairman of the Financial Supervisory Commission (FSC), noted that the FSC aimed to unify financial supervision to ensure stable development of the financial systems as well as sound operation of financial institutions. Besides, he said that one of the FSC’s policy goals has been strengthening of resilience of the financial market for absorption of internal and external shocks. The FSC also carried out approaches, such as encouraging financial institutions to assist worst-hit businesses and individuals in granting relief loans as responsive measures to the COVID-19 pandemic. He continued to point out financial innovation and sustainability as the FSC’s key policies.
Day 1: CP 6, A Deposit Insurer’s Role in Contingency Planning and Crisis Management
Presenter: Eugenia Alamillo
Ms. Eugenia Alamillo, IADI Senior Training and Technical Assistance Advisor, provided an overview of the key features of the IADI Core Principle (CP) 6 and 14 for Effective Deposit Insurance Systems. The CP 6 focused on the deposit insurers’ role in contingency planning and crisis management. She emphasized the CP 6 for contributing the financial stability through strengthening consumer confidence and reassuring executives and board members of deposit insurers as well as other financial safety-net members of readiness for bank failure. The contingency planning consists of three major steps including developing a risk analysis and procedure map, assessing the likelihood of risky events and their potential impact on operations, and constructing different testing scenarios to identify weakness. Ms. Alamillo further explained the CP 14 and its essential criteria which focused on failure resolution. An effective resolution regime should enable the deposit insurer to provide for protection of depositors and contribute to financial stability and include a special resolution regime in the legal framework. She stressed that a strong institutional framework reduces the risk of bank failures or crises and helps minimize the costs of bank failures.
Presenter: Rafiz Azuan Abdullah
Mr. Rafiz Azuan Abdullah, Chief Executive Officer of the Malaysia Deposit Insurance Corporation (MDIC) started by sharing about the context of the Malaysia financial system and safety net. Then he shared the MDIC’s thinking about the topic of crisis preparedness on its approaches, key outcomes as well the challenges it faces. He stressed that crisis preparedness is more than just doing simulations. The MDIC looked at crisis preparedness holistically by covering reimbursement arenas, funding arrangements, differential premium system and resolution planning work as well as engaging stakeholders in good time. Four outcomes the MDIC aimed for were presented: moving from present to future-ready via strengthening ex-ante thinking, from theory to rigorous practice by enhancing simulations, from traditional last-mile to focus on early actions, from internal-ready to industry-ready through pursuing collaborative readiness. Lastly, Mr. Abdullah concluded that crisis preparedness was a strategic opportunity for deposit Insurers to value-add and strengthen the safety net in ‘peace times’. However, it needed to be designed and calibrated well to sustain efforts over the medium to long term.
Presenter: Chantal Richer
Ms. Chantal Richer, Chief Operating Officer of the Canada Deposit Insurance Corporation (CDIC Canada), provided an overview of a research project of the IADI Regional Committee of North America to analyze the contingency plan testing programs of deposit insurers and resolution authorities in Canada, the United States and Mexico. Several common challenges in contingency plan testing had been identified. Achieving the right balance between structure and flexibility when conducting exercises, and the use of effective decision-making methods were two common challenges faced by many jurisdictions. Moreover, the literature highlighted the need for testing the operationalization of information sharing agreements among financial safety net agencies. Ms. Richer also included four case studies contributed by the Autorité des marchés financiers (Quebec, Canada), the CDIC Canada, the Federal Deposit Insurance Corporation (USA), and the Instituto para la Protección al Ahorro Bancario (Mexico). These case studies illustrated practical elements associated with contingency plan testing programs.
Presenter: Tae-hyun Kim
Mr. Tae-hyun Kim, Chairman and President of the Korea Deposit Insurance Corporation (KDIC), provided an overview of the KDIC’s business continuity plan (BCP) in response to the COVID-19 pandemic. He noted that the BCP consisted of details of key response measures, adjustment of the manual to respond to the financial crisis, set-up and use of contactless working environment, arrangement of emergency workspace and contingency plan for fund management. In addition, the KDIC implemented nine measures in response to COVID-19 by function including setting up emergency response system, stronger management of COVID-19 related risks of insured institutions, maintaining business continuity by using contactless tools, simulation exercise to improve resolution capacity given the pandemic and etc. Through adapting effective response measures to cope with the COVID-19 pandemic, he said that the KDIC prevented the spread of infection within the organization. In the future, the KDIC will set up flexible responses to situational change to live with the virus, invite related agencies to join the emergency response exercise and improve the IT infrastructure for provision of effective online services to the public including utilizing mobile phones, AI and other advanced technologies.
Day 2: CP 14, Failure Resolution
Presenter: Hidenori Mitsui
The first presenter for Day 2 of the Workshop was Mr. Hidenori Mitsui, Governor of the Deposit Insurance Corporation of Japan (DICJ). He delivered a presentation focusing on effective resolution frameworks for dealing with Japanese three global systemically important banks (G-SIBs) and four domestic systemically important banks (D-SIBs), enhancement of resolvability and operational resiliency in Japan. He started the speech by stating that the financial system in Japan has remained steady and the ratio of non-performing loans in the banking sectors maintained at a low level in recent years. He then shared five important approaches taken to ensure resolvability and operational resiliency: resolution approaches including normal and systemic risk procedures, establishing crisis management groups, institution-specific cross-border cooperation agreements, resolvability assessments, and the recovery and resolution plans. Finally, Mr. Mitsui encouraged financial institutions to exchange information. In order to face changing environment, ongoing approaches were to promoting digitalization at the DICJ.
Presenter: Yury Isaev
Mr. Yury Isaev, General Director of the Deposit Insurance Agency, Russia, introduced cooperation and coordination framework of financial safety net participants in Russia and the bank resolution plan during the COVID-19 pandemic. Mr. Isaev spoke of the importance of information sharing between the deposit insurer and other financial safety-net participants. He then expressed that in case that a financial institution failed, a deposit insurer should have access as soon as possible to specific information so that the deposit insurer could estimate liquidity, resources requirements and possible risk exposure. Further, Interdepartmental Electronic Interaction System (IEIS) was established in the Russian Federation to obtain high-quality information. In order to avoid the risk of default, Mr. Isaev mentioned that the exemption period was provided for borrowers whose income decreased due to the pandemic impact, and borrowers could reduce or suspend payments on a loan obligation for up to 6 months.
Presenter: Bret Edwards
Mr. Bret Edwards, Deputy to the Chairman and Chief Financial Officer of the Federal Deposit Insurance Corporation (FDIC), commenced his presentation by introducing three FDIC’s successful resolution cases during the COVID-19 pandemic. He described that the FDIC used Purchase & Assumption (P&A) transaction method to resolve these failed banks. Considering the severe COVID-19 situation and travel restrictions, he then said that asset valuation and due diligence were conducted in a virtual approach with minimum onsite presence. Further, a virtual data room was also set up to provide potential bidders with details of the failing banks. After executing the P&A agreements to winning bidders remotely, the failed financial institutions were then closed. Mr. Edwards pointed out the modified bank closing procedures were based on pandemic risk levels, resolution complexity and potential resolution transactions, with the risk mitigation strategies in health and safety during the pandemic. This FDIC’s new resolution model was not only able to increase flexibility of closing tasks and streamline reporting and communication, but also to leverage technology developments and further enhance effectiveness.
Presenter: Thierry Dissaux
Lastly, Mr. Thierry Dissaux, Chairman, Fonds de Garantie des Dépôts et de Résolution (France) and the European Forum of Deposit Insurers (EFDI), outlined a background of the creation of EU Banking Union at the beginning of his presentation. He stated that the Banking Union is based on three pillars: the Single Supervisory Mechanism (SSM), the Single Resolution Mechanism (SRM) and the European Deposit Insurance Scheme (EDIS). Further, the goals for building the Banking Union may cover three dimensions, including supervisory and regulatory harmonization, burden sharing of financial crises, and banking market integration across the EU. Since the global financial crisis, the EU laid out the single rule book for handling bank failures and enhancing depositor protection, with the bank crisis management and deposit insurance (CMDI) framework focusing on three EU legislative rules: the Bank Recovery and Resolution Directive (BRRD), the Single Resolution Mechanism Regulation (SRMR), and the Deposit Guarantee Schemes Directive (DGSD). The European resolution framework under the CMDI was further explained in this presentation, with the triggers and conditions of policy tools. Mr. Dissaux concluded that there was also growing awareness of specific discussion of the CMDI framework, and the CMDI consultation conducted this year will provide the future CMDI revision with the stakeholders’ experience and views collected.
Closing Remarks
Mr. William Su, President of the CDIC Taiwan, concluded that global financial safety net players would act differently and need early preparedness in the aspects of responses to the financial crisis and recovery and resolution mechanisms for problem financial institutions following changes in financial environment, global warming and development of Fintech. He reminded everyone the spirit of an old saying, “Make hay while the sun shines.” In addition, he said that the speakers’ presentations would be conducive for deposit insurers to effectively deal with the emerging challenges.