The banking crisis resolution framework is a special regime that entails the restructuring of a covered institution by the Resolution College through the resolution measures set forth in Article 53 of the Annex to the Agreement Governing the WAMU Banking Commission. It is specifically designed to contribute to safeguarding financial stability, protecting depositors and creditors, and avoiding or minimizing reliance on public financial support or central bank funding.
The banking crisis prevention and resolution framework enables the Resolution Authority to resolve a distressed covered institution in an orderly, swift, and efficient manner. This entails, inter alia, preventing any disruption to banking activities within a Member State or across the WAMU, and ensuring the continuity of the critical functions, services, and operations of institutions undergoing resolution proceedings.
The resolution mechanism currently in force within the WAMU framework comprises the following core resolution tools :
- the mandatory transfer of all or part of one or more business lines of the institution under resolution to one or more purchasers ;
- the use of a bridge institution to temporarily assume all or part of the assets, rights, and obligations of the institution under resolution, with a view to their subsequent transfer under the conditions specified by the WAMU Banking Commission ; and
- the write-down and conversion of unsustainable equity.
During a resolution process, the Resolution College may also implement other measures as provided for under Article 53 of the Annex to the Agreement Governing the WAMU Banking Commission.
Pursuant to the provisions of Article 50 of the Annex to the Agreement Governing the WAMU Banking Commission, prior to the onset of a banking crisis, the Resolution College shall draw up a resolution plan, which is a document outlining the measures it may implement to address the failure of a regulated institution.
The resolution plan shall be drafted in accordance with a framework adopted by the Resolution College, based on information provided by the institution concerned, specifically its Preventive Recovery Plan (PRP) as well as the decisions of the resolution authority.
The Preventive Recovery Plan is prepared by the regulated institution to identify the measures it can implement to address a material deterioration of its financial position. The Preventive Recovery Plans of institutions subject to the resolution framework shall be approved by the Supervisory College and forwarded by the latter to the Resolution College.
Resolution proceedings may be initiated by the Resolution College, upon referral by the Supervisory College, when an institution is deemed non-viable with no reasonable prospect of restoring its viability.
The Supervisory College shall determine whether an institution is non-viable with no prospect of returning to viability by assessing its situation against the following criteria, inter alia :
- the institution's assets are insufficient to cover its liabilities or to safeguard its depositors and creditors ;
- the institution has lost the confidence of depositors, other creditors, or the general public, as evidenced by its growing difficulty in securing short-term funding ;
- the institution is unable to repay its debts as they mature or to meet its liabilities as they fall due ; and
- the implementation of the recovery plan has failed to resolve the institution's financial distress.
