New insolvency procedures needed

AILING INSTITUTIONS:CURRENT INSOLVENCY procedures are not suited to dealing with distressed financial institutions and new legislative options in the area of special resolution need to be developed, the Central Bank report has said.

It points out that the restructuring of a distressed credit institution is dealt with through liquidation or examinership, processes that are not suited to financial institutions, particularly in light of their responsibilities to depositors.

The report states that the Central Bank is working closely with the Department of Finance to introduce a Special Resolution Regime which will allow the regulatory system to deal in a systematic way with distressed financial institutions.

The report states that regimes in other countries have invested regulatory authorities with a range of powers, such as the power to implement a special administration procedure whereby the Central Bank could appoint an administrator to take over the management of a credit institution, the establishment of a “bridge bank”; and the transfer of all or part of the institution to a willing third party, such as an existing licensed credit institution.

The report states that the design of a possible SRR for Ireland will involve careful examination of a range of legislative, policy and commercial issues over the coming months.

Other recommendations included in yesterday’s report include a call for banks to refresh their boards, and in particular to include more board members from outside Ireland. The report states that as the banking system emerges from the crisis, banks will be engaging in new areas of commercial activity and will require individuals with relevant skills, knowledge and experience.

“We consider that a better balance between domestic and internationally qualified board members will be of benefit to banks, their customers and the system as a whole.”

The report also recommends that the current policy by which the Central Bank can grant a licence to a branch of a bank that is not licensed in another EU member state should be abolished.