The resolution of banking crises is a special regime which consists in proceeding with the restructuring of a subject institution, by the Resolution College, by means of the resolution measures provided for in Article 53 of the Annex to the Agreement governing the Commission WAMU banking. It aims in particular to contribute to the preservation of financial stability, to ensure the protection of depositors and creditors and to avoid or limit recourse to public financial support or from the Central Bank.
The system for preventing and resolving banking crises enables the Resolution Authority to resolve the difficulties of a subject institution in an orderly, rapid and efficient manner. This involves, among other things, avoiding any disruption of banking activity within a Member State or the WAMU and ensuring the continuity of the activities, services and operations of the institutions subject to of a resolution procedure.
The resolution mechanism currently in force in WAMU includes the following main resolution tools :
- compulsory transfer of all or part of one or more of the areas of business of the institution subject to a resolution procedure to one or more buyers ;
- recourse to a bridge institution that will temporarily receive all or part of the assets, rights, and obligations of the institution subject to a resolution procedure, with a view to transferring them under the conditions laid down by the WAMU Banking Commission, and ;
- cancellation and conversion of unsustainable equities.
During a resolution procedure, the Resolution College may also take other steps as provided for in Article 53 of the Annex to the Convention Governing the WAMU Banking Commission.
Pursuant to the provisions of Article 50 of the Annex to the Convention Governing the WAMU Banking Commission, before a banking crisis breaks out, the Resolution College must draw up a resolution plan, which is a document setting out the steps that it is likely to take to respond to the failure of a regulated institution.
The resolution plan is drafted in accordance with a framework adopted by the Resolution College, based on the information provided by the institution concerned, namely its Preventive Recovery Plan (PRP) as well as the ruling of the resolution authority.
The Preventive Recovery Plan is drawn up by the regulated institution with a view to identifying the measures it can take to deal with a significant deterioration of its financial situation. The Preventive Recovery Plans of institutions subject to the resolution mechanism shall be validated by the Supervisory College and submitted by the latter to the Resolution College.
A resolution procedure may be initiated by the Resolution College, at the behest of the Supervisory College, when an institution is deemed to be non-viable with no prospect of returning to viability.
The Supervisory College shall determine whether an institution is insolvent with no prospect of returning to profitability by assessing its situation with regard to one or more of the following criteria, among others :
- the institution's assets are not sufficient to adequately protect its depositors and creditors ;
- the institution has lost the confidence of the depositors or other creditors and the general public. This situation may be demonstrated by the institution's increasing difficulty in obtaining short-term financing ;
- the institution has been unable to repay a liability due or is unable to meet its liabilities as they fall due and become payable, and ;
- the implementation of the recovery plan has not resolved the institution's financial difficulties.
