Preparing for the Resolution of a
Troubled Bank
Have Your Toolkit Ready
“Plans are nothing; planning is everything.”
Bank Resolution Contingency
Planning- Why Do It?
 Countries must be prepared to allow a bank to fail
 An actual bank closing will be different than the one
you prepared for
 Contingency planning for closings should be
undertaken on a regular basis
 Such contingency planning can require a significant
resource commitment including the time of staff and
senior management
 The benefits of contingency planning outweigh the
costs
Identifying Key Parties When
a Bank Needs to be Resolved
 Government entities that would be involved (Prime
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Minister, Central Bank, Deposit Insurer, Ministry of
Finance)
Media (domestic and foreign)
Private sector participants that may be acquirers of
banks or assets or specialized service providers
Foreign home/host supervisors of parents,
subsidiaries and branches of local institutions
Maintain names and coordinates for key people
Develop a Communications Plan
 Overriding objective: maintain public
confidence
 Problems should be acknowledged but
accompanied by solutions
 Consistent focused message coordinated
between key agencies
 Make use of a main spokesperson (with backup) and involve senior people - stay on
message
Possible Triggers For A Bank Closing
Can Have Different Consequences
Consider these various scenarios:
 Capital adequacy below threshold level
 Failure of a plan for capital raising
 A rogue event such as fraud
 Losses of confidence
 Market events (collapse of one or more
markets)
 A natural disaster
What Documents Would Be Needed In
Each of These Situations?
 Make use of The Resolution Toolkit in
planning for a bank resolution
(http://siteresources.worldbank.org/EXTFINA
NCIALSECTOR/Resources/Bank_Resolution_
Toolkit.pdf)
 Review the legal authority and market for
acquisition of whole banks or bank assets and
put together the outlines for all types of
possible acquisitions
How A Closing Is Designed Dictates What
Forms Will Be Needed
 Example 1 - if there will be a paying agent bank you
will need a Paying Agent Agreement (Form 11 in the
Toolkit)
 Determine how a Paying Agent will be chosen in
advance of a bank closing – how will possible conflicts
of interest be addressed?
 Outline the issues that will need to be addressed in an
agreement in advance of a bank closing such as the need
to perform a “true-up” after closing once all accounts to
be transferred are identified, the procedure for
unclaimed deposits and the payment of interest on
accounts
Example 2
 If you are considering doing purchase and
assumption agreements outline the possible deal
points that might be offered and prepare standard
form agreements for each possibility
 Form 12 is a simple P&A agreement with a put
option, setting forth the obligations of the parties at
various points in time
 The assuming party has 60 days to “put” assets to
the Receiver, purchase additional defined assets
from the Receiver or seek assignment of leases
Example 2 (continued)
 Note that the contract provides for an Equity
Adjustment which reflects either a positive or
negative number depending on the mix of assets and
liabilities assumed
 The Equity Adjustment is part of a “true-up”
process that will continue during the period of time
the acquirer has rights to “put” assets back to the
Receiver or purchase other loans or property from
the Receiver
 The Equity Adjustment may be in cash or bonds
Example 3
 If a management team will be placed in the bank
(for example in a bridge bank situation) there will
need to be a detailed contract outlining the team’s
responsibilities and remuneration (see Form 9)
 The contract should set forth with specificity the
description of the services to be rendered by the
team and the compensation measures, including if
applicable any performance based compensation
 Appendix A of Form 9 provides a detailed
description of services that can be modified to fit
specific circumstances
Prepare Your Resolutions
Handbook
 Determine what will be needed if a bank is
closed to include
 Staffing at Branches
 Communications
 Interpretive Services
 Legal Support
 Accounting Support
 Asset Management
Managing the Resolution
 Communications may be biggest challenge
 There may be need for liquidity support for
certain types of resolutions – where will it
come from?
 Manage individual bank resolutions to prevent
a systemic crisis
 Prepare an after action report to capture
“lessons learned”