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News : Irish Economy Last Updated: May 25, 2011 - 6:44 AM

Bill provides for resolution regime for failing Irish financial institutions and funding levy
By Finfacts Team
May 24, 2011 - 12:07 PM

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The Department of Finance in snowy Dublin, Thursday, Dec 02, 2010

The Minister for Finance Michael Noonan today published the Central Bank and Credit Institutions (Resolution) (No. 2) Bill which provides for a resolution regime for failing Irish financial institutions and a funding levy.

The Minister said the Bill implements the commitment in the Programme for Government to introduce a comprehensive special resolution regime for dealing with bank insolvencies and provides the framework for the introduction of a bank levy, which is also a Programme for Government commitment.

He said: “The publication of the Bill today is an important step in ensuring that the Central Bank has the appropriate powers to promptly and effectively resolve distressed instructions e.g. when they pose a risk to financial stability.

The purpose of the Bill is to provide for a ‘main stream’ long term special resolution regime for credit institutions in the State. I am preparing committee stage amendments to the Bill, which are designed to enhance the resolution toolset in line with the evolving EU principles on crisis resolution and in the light of discussions with the external partners.”

The Minister added that the Bill provides the Central Bank of Ireland with additional powers to achieve an effective and efficient resolution regime for credit institutions (including building societies and credit unions) that are failing or likely to fail and that is effective in protecting the Exchequer and the stability of the financial system and the economy.

It sets out the circumstances in which the resolution tools available to the Central Bank of Ireland can be activated. The key tools available to the Central Bank will include:

Transfer Order: The ability, through the mechanism of an order made by the High Court, to in certain prescribed circumstances, transfer some or all of a relevant institution’s assets and liabilities to another institution;

Special Management Order: The power, through the mechanism of an order made by the High Court, in certain prescribed circumstances, to appoint a special manager to an institution. The purpose of the special manager is to manage the business of an institution to facilitate the development of recovery and resolution plans or to wind down the institution with a view to liquidation;

Allowing for the establishment of a “Bridge Bank” to hold, on a temporary basis, some or all of the assets or liabilities of a financial institution which has financial difficulties with a view to their transfer to another institution;

A modified liquidation process in respect of financial institutions in difficulty where the liquidator will be mandated with two objectives, firstly and primarily to work with the Central Bank to ensure that depositors covered by the Deposit Protection Scheme receive a payout or have their deposits transferred to another institution, and secondly to achieve the best results for the institution’s creditors as a whole;

The development of Recovery and Resolution Plans in relation to financial institutions in order to facilitate the Central Bank of Ireland and the individual institutions’ preparations to deal with potential instances of financial difficulties for the institutions concerned.

The Department of Finance said the Bill also provides for the establishment of a Resolution Fund to minimise taxpayers’ exposure to future financial sector difficulties which would be funded by contributions from credit institutions.

The Department said the development of the Bill has followed best international practice in other jurisdictions that have introduced special resolution regimes. It also reflects the evolving EU framework and is closely aligned to the principles informing the development of a proposal for an EU Directive in this area which is scheduled for publication later in 2011.

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