Jakub Kerlin

COMPARATIVE ANALYSIS OF THE BAIL-IN TOOL

The article aims to analyse selected components of one of the tools of orderly restructuring and liquidation of financial institutions, namely the conversion of equity or debt write-down tool (bail-in). The presented breakdown shows the variety of approaches to defining bail-in and points of convergence of these approaches. One of the key findings highlights the global shift in the approach to the issue of restructuring and liquidation of financial institutions and indicates a new path undertaken by public authorities, which allows for allocating costs to the owners of financial institutions. Governments should prepare a legal framework for the effective use of this tool before the necessity of its application becomes manifest. The study is based on a comparative review of legal frameworks in selected countries as well as reports, studies, publications and practical experience of countries that have applied bail-in.

Participation of Deposit Guarantee Schemes in Resolution—Literature Review

This chapter provides an overview of literature regarding the topic of deposit guarantee and resolution of financial institutions. In the first part, the reader will find an explanation of the most important terminology, used extensively throughout the book. Further on, a comprehensive overview of literature concerning both topics has been prepared—namely, the cases where both institutions work cooperatively. The analysis described in this chapter allowed for the indication of selected areas and research deficits, thus providing an outline for future studies, direction, and roles deposit guarantee institutions should take.

The Concept of Resolution of Financial Institutions

This chapter presents the theoretical basis of introducing resolution—a procedure designed as the answer to deposit guarantee scheme weaknesses—in the EU. Key goals and conditions related to the procedure, as well as administrative instruments designed for the elimination of large financial institutions, were hereby described. Special attention was paid to financing resolution, because means of the financial sector (not public resources) are determinants for the effectiveness of the procedure. The role of deposit insurance agencies in the procedures was also described, with special emphasis on the high level of freedom in institutional shaping of EU financial safety in the aftermath of the crisis. Instruments applied in resolution were also scrutinized, and their weaknesses and little practical experience were brought to light.

Financial Capabilities of Deposit Guarantee Schemes

This chapter presents the effectiveness of potential deposit guarantee scheme interventions in their most common forms, namely, standard paybox deposit payout procedures for insolvent banks. Initially, two key deposit insurance agency effectiveness components, psychological and financial, were described. Special attention was given to the scope of potentially effective interventions of deposit insurers, which largely rely on financial means of the given institution. The chapter presents the causes of low deposit guarantee schemes’ effectiveness. Analysis of the traditional paybox deposit guarantee model proves it inefficient. Also, it is shown that proposed reforms may be insufficient to provide depositor protection and financial stability in the EU.

Development of Deposit Guarantee Schemes and Their Role in the Financial Safety Net

This chapter presents the development of deposit guarantee schemes, starting from an overview of the scope of research on deposit insurance agencies in chosen countries. Properties that distinguish specific types of deposit guarantee schemes from one another have been demonstrated, along with a presentation of how deposit insurance agencies are established in the EU and globally. A new classification of deposit guarantee schemes that includes their historical and postcrisis forms is hereby offered. The chapter is concluded by the analysis of the proposal of establishing a pan-European Deposit Insurance Scheme—EDIS.

The Impact of Deposit Guarantee Schemes on the Effectiveness of Resolution

This chapter presents research on the potential effectiveness of resolution. Several scenarios have been tested, both favorable and unfavorable, in multiple variations of financial institution resolution. The goal of the study was to determine the extent to which the new EU procedure impacts specific member states, as well as verify whether participation of the deposit insurance agency in the process increases the potential success of intervention toward banks.

Readiness of Deposit Guarantee Schemes to Participate in Resolution

This chapter analyzes the extent to which EU guarantee schemes are prepared to participate in resolution. An innovate method of measuring whether deposit insurance agencies’ readiness for taking on new roles within the EU financial safety net is also hereby applied. The evaluation is based on the creation of a resolution readiness index for deposit insurance agencies, which enables the differentiation of countries based on their results. The index was built through the selection of characteristics of deposit insurers, such as their political position and legislative authority, which largely reflect their preparedness for resolution procedures. This chapter is concluded with practical recommendations for particular groups of EU member states.

Landscape after the Lessons of the Crisis

This chapter characterizes the changes caused by the recent global financial crisis (GFC). The starting point is the macroeconomic situation combined with the situation in the EU banking sectors. Because the GFC forced the decision-makers to rebuild the financial safety net, the most significant changes for the EU banking sectors have been also elaborated. These include more restrictive capital regulations, liquidity regulations, responsibilities of the financial safety net players and the resolution authority and tools. The chapter also emphasizes the banking union, which is a new concept implemented gradually for the Eurozone. On 4 November 2014, the Single Supervisory Mechanism (SSM) started to operate as the first pillar of the banking union.

Comparative Analysis of the Bail-in Tool (Analiza porównawcza narzędzia umorzenia i konwersji długów)

English Abstract:The article aims to analyse selected components of one of the tools of orderly restructuring and liquidation of financial institutions, namely the conversion of equity or debt write-down tool (bail-in). The presented breakdown shows the variety of approaches to defining bail-in and points of convergence of these approaches. One of the key findings highlights the global shift in the approach to the issue of restructuring and liquidation of financial institutions and indicates a new path undertaken by public authorities, which allows for allocating costs to the owners of financial institutions. Governments should prepare a legal framework for the effective use of this tool before the necessity of its application becomes manifest. The study is based on a comparative review of legal frameworks in selected countries as well as reports, studies, publications and practical experience of countries that have applied bail-in.Polish Abstract: Artykul jest poświecony analizie wybranych cześci skladowych jednego z narzedzi przymusowej restrukturyzacji instytucji finansowych jakim jest umorzenie i konwersja dlugow (bail-in). W prezentowanym zestawieniu ukazano roznorodnośc podejśc do definiowania tego narzedzia oraz ich punkty wspolne. Jeden z kluczowych wnioskow podkreśla globalną zmiane podejścia do zagadnienia restrukturyzacji i likwidacji instytucji finansowych oraz wskazuje na przyjecie nowej ściezki postepowania, ktora umozliwi poniesienie straty w pierwszej kolejności przez wlaścicieli instytucji finansowych. Panstwa powinny prawnie usankcjonowac stosowanie tego narzedzia jeszcze przed wystąpieniem konieczności jego aplikacji. Badanie opiera sie na przeglądzie porownawczym rozwiązan prawnych stosowanych w wybranych panstwach świata oraz raportow, badan, publikacji i zestawieniu doświadczen praktycznych.