Page 43 - Banking Finance April 2018

ARTICLE

Figure 2: Monitoring and Resolution of Financial Firms

Regulator Low Risk Merger/Acquisition

Monitoring by regulator. Bail-in
Below
Classification of financial firms acceptable Material Risk Monitoring by regulator and Corporation. Methods of resolution Bridge Service
acceptable
Moderate Risk
risk level

Transfer
Above
Resolution plan: Includes steps to exit
resolution process (under’critical’ category.)
risk level
Imminent Risk
Restoration plan: Includes steps to
classified at least under ‘moderate’ risk.

To be completed within one year Provider
Corporation Critical Risk Resolution by Corporation Liquidation
(extendable by another year

(Source: The Financial Resolution and Deposit Insurance Bill, 2017)

Liquidation and Distribution of Assets Bail-in
The Corporation will require the approval of the National Financial firms include banks, non-banking financial
Company Law Tribunal (NCLT) to liquidate the assets of a companies, insurance companies, pensions funds, stock
service provider. Proceeds from the sale of assets will be exchanges, and depositories. These firms accept deposits
distributed in the following priority order. from consumers, invest these funds, and provide loans.
Often these firms borrow from each other. Failure of a firm
Figure 3: Order of priority for may result in adverse consequences for other financial firms,

Distributing Assets and could trigger off system wide financial instability.
Q Deposit insurance
Q Resolution costs (including liquidation costs)
Q (i) Workmen dues for 24 months, and (ii) secured
creditors
Q Wages to employees for 12 months
Q Uninsured deposits and insurance related amounts
Q Unsecured creditors
Q (i) Government dues, and (ii) remaining secured
creditors (remaining debt if they enforce collateral)
Q Remaining debt and dues
Q Sharedholders
(Source: The Financial Resolution and Deposit Insurance Bill,
2017)

BANKING FINANCE | APRIL | 2018 | 43