## cr17341

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### Institutional arrangements and legal framework
- The transposition of the Bank Recovery and Resolution Directive (BRRD) into Spanish law strengthened the resolution regime in Spain.
- The BRRD and the Single Resolution Mechanism Regulation (SRMR) are closely aligned with the Financial Stability Board (FSB)’s Key Attributes of Effective Resolution Regimes for Financial Institutions (KAs).
- Banking Union roles:
  - Single Supervisory Mechanism (SSM) supervises all the significant entities.
  - Single Resolution Board (SRB) is the resolution authority for significant entities and cross-border groups.
- National roles in Spain:
  - BdE is both the supervisor and shares responsibility for resolution planning with the SRB.
  - FROB is the resolution authority that approves and implements the resolution schemes and is 100 percent state-owned.
  - Deposit Guarantee Fund (FGD) is a private institution guaranteeing deposits up to €100,000 per depositor and credit institution.
- Responsibility split:
  - 14 institutions identified as Significant Institutions (SIs) are supervised by the ECB with operational support from the BdE; these SIs represent more than 90 percent of total banking system assets.
  - 56 Less significant institutions (LSIs) are directly supervised by the BdE; BdE is responsible for supervision and Resolution and Recovery Planning (RRP) for LSIs but operates under general oversight of the ECB and the SRB.
- National transposition:
  - November 2015 transposition of BRRD introduced sale of business, bridge banks, asset separation (P&A), and bail-in authority.
  - Spanish legislation did not include the two optional government stabilization tools (equity support and temporary government ownership).

### Crisis prevention and recovery planning
- Recovery plan coverage and status:
  - All banks in the EU are subject to recovery planning requirements.
  - The ECB and BdE have received recovery plans from most institutions.
  - All of the 14 SIs have approved recovery plans.
  - Among LSIs:
    - 13 smallest institutions eligible for simplified recovery plans; BdE has authorized simplified recovery plans for the 13 smallest institutions.
      - BdE has approved 2 of 13 simplified plans.
    - The remaining 41 LSIs have prepared full recovery plans; 39 of those 41 have been approved.
  - Note: another section states BdE had not approved any LSI plans to date with a final decision expected by September 2017.
- Simplified recovery plans:
  - May require fewer stress tests, less frequent updating (possibly every three years), and only a minimum list of financial indicators.
- Update frequency:
  - SIs update plans annually or when there is a material change.
  - Some smaller LSIs have longer periods between updates, sometimes lasting up to three years.
- Identified shortcomings in plans reviewed:
  - Inadequate information to evaluate recovery options.
  - Only broad outlines of methodology and valuation assumptions.
  - Lack of full assessment of impact of recovery options.
  - Insufficient communication plans.
  - Limited descriptions of implementation.
- Recommendation:
  - Supervisory oversight should ensure recovery plans are updated whenever there is a change in the entities’ risk profile; if updating full plans is burdensome for some LSIs, ensure critical elements are updated more frequently.

### Crisis management and resolution regime
- Resolution planning and responsibilities:
  - For SIs, the SRB prepares resolution plans through Internal Resolution Teams (IRTs) with participation of BdE and FROB.
  - For LSIs, the BdE prepares resolution plans and assesses resolvability; BdE shares plans with FROB (which issues a non-binding report) and with the SRB for review and consistency checks; BdE gives final approval; FROB executes all resolution schemes for both SIs and LSIs.
  - SRB prepared resolution plans for 10 SIs during 2016 with an additional two transitional plans prepared in 2017.
- Entry into resolution:
  - Resolution is a two-staged process: (i) determination that the institution is failing or likely to fail (F/LF), and (ii) review of other conditions for resolution (no reasonable prospect for a private-sector solution and that resolution is in the public interest).
  - For SIs, both the ECB and the SRB can determine F/LF; for LSIs, only the BdE may make such determination.
  - For SIs, the resolution scheme requires the European Commission’s approval, which may result in amendments and may involve the Council of the European Union in certain situations.
  - Decisions to find an entity F/LF by authorities are subject to review by the Spanish courts, but the court cannot reverse the decision; appeal does not suspend the decision.
- Preferred resolution strategies and models:
  - BRRD principal resolution tools: (i) sale of business, (ii) establishment of a bridge bank, (iii) an asset separation power, and (iv) bail-in powers.
  - SRB has adopted a multiple point of entry (MPE) model for the two global banks (BBVA and Santander) given their corporate structures; for most remaining SIs (not holding companies and without significant global operations), resolution will use BRRD tools including sale of business, bail-in, or a combination including bridge bank creation.
  - For G-SIBs, SRM assumes bail-in exercised under a single-point-of-entry (SPE) for cost effectiveness; Spanish cross-border banks structured as independent subsidiaries prompted MPE for BBVA and Santander.
- Bail-in and MREL:
  - Bail-in permits write down of creditor liabilities and their conversion into equity; BRRD prescribes no creditor should be worse off than in insolvency.
  - Not all SIs hold adequate levels of bail-inable securities to implement recapitalization.
  - MREL requirements are under development; preliminary MREL levels set at twice the sum of Pillar 1 and the new Pillar 2 Requirement plus capital buffers, or twice the leverage ratio, whichever is higher.
  - Eligible securities must have maturities longer than one year and be unsecured.
  - Commission is reviewing MREL to align more with TLAC; revised MREL regulation will become effective only a year after approval.
- Operational challenges:
  - Financing operations of bridge bank and asset separation tools remains under review.
  - Determination of MREL requirements and transition periods pending.
  - Some small LSIs are regionally critical and may lack feasible private-sector buyers or bail-in-able liabilities.
- Resolution funding:
  - Single Resolution Fund (SRF) receives ex ante contributions from all euro-area banks; built up during the period 2016–2023 and targeted to reach one percent of covered deposits.
  - SRF may be used only as last resort; before SRF can be triggered, shareholders must have absorbed losses and creditors bailed in for a total of eight percent of total liabilities; SRF contribution cannot exceed five percent of total liabilities.
  - In Spain, FROB collects contributions from both SIs and LSIs.
  - FROB can draw on FGD funds subject to safeguards for certain resolution financing purposes.
- Resolution procedures and approvals:
  - For SIs, SRB prepares scheme; scheme must be approved by extended Executive Session of SRB and endorsed by the European Commission; Commission objections can require amendment; Commission may need EU Council approval for certain objections; scheme enters into force 24 hours from SRB transmission if no objection by Commission or EU Council.
  - For LSIs, FROB prepares final proposal; SRB is responsible for approval if SRF use is involved; FROB implements resolution.

### Safety net, Deposit Guarantee Fund (FGD), and cross-agency coordination
- FGD design and governance:
  - FGD established in 2011 by combining three sectorial insurance funds; private institution with Board of 11 members: 2 government representatives, 4 appointed by BdE, and 5 representing industry; President is the Deputy Governor of the BdE.
  - Membership mandatory for all credit institutions authorized in Spain; for institutions authorized in other EU member states, membership in the Spanish fund is voluntary.
  - Coverage limit: €100,000 per depositor per institution; effective coverage: 98 percent of all depositors being fully covered and 71 percent of the value of deposits fully covered.
- Funding and targets:
  - Fund is financed by the industry; Board determines annual contribution; premiums are risk-based and based on covered deposits using supervisory data.
  - Current fund level: 0.25 percent of covered deposit; target: increase to 0.8 percent by 2024.
  - FGD may accept payment commitments instead of cash up to 30 percent of available resources if secured.
- Payout operations and timelines:
  - FGD is a pay box plus: responsible for paying depositors and providing some resolution financing.
  - Payout process begins once BdE places an institution in resolution or a Judicial Court declares bankruptcy; FGD must collect depositor information, clean data, identify payment agents, notify depositors, and effect transfers.
  - FGD payout objectives: full payout within seven working days; interim target of 20 working days by end-2018. Meeting these targets requires organizational and procedural improvements.
- Role in resolution decision-making and safeguards:
  - FGD does not currently participate in decisions on whether to use its funds or how they are used; has fiduciary duty to protect funds and avoid “double jeopardy.”
  - Safeguards on FGD use:
    - FGD resources cannot be used unless shareholders have first absorbed losses and 8 percent of liabilities have been bailed-in.
    - Use of FGD funds cannot exceed the amount of depositor payout in liquidation.
    - Use of funds cannot exceed 50 percent of the FGD’s targeted fund level (0.8 percent of covered deposits).
    - Any institution receiving FGD funds must be under strengthened supervisory oversight.
  - Recommendation: If FGD resources are to be used, the FGD should participate in resolution decisions and in any inter-governmental crisis group as manager/protector of the funds; consider strengthening firewalls for private sector Board members and possibly converting FGD to a government agency in the medium term.
- Emergency liquidity:
  - FGD lacks an emergency back-up liquidity facility; options currently include requesting extraordinary contributions from the industry or issuing guaranteed bonds; no formal emergency line of credit with the government or BdE exists.
  - Recommendation: establish a formal line of credit with Government/BdE as emergency back-up.

### Crisis simulations and preparedness
- Current status:
  - The authorities have not conducted crisis simulation exercises, either on an individual agency basis or as a multi-agency exercise.
- Recommendations:
  - Conduct crisis simulations to operationalize new resolution instruments:
    - Individual authority exercises (e.g., FROB and BdE) — formal tabletop or unannounced scenario tests to evaluate internal systems and rapid response capability.
    - Coordinated systemic crisis exercises — test mechanisms for sharing diagnoses, information sharing among agencies, and ability to develop coordinated policy responses.
  - Establish a cross-institutional forum or entity to monitor emerging risks and coordinate policy responses; options include re-invigorating the Financial Stability Committee (CESFI), relying on the proposed Systemic Risk Board, or using the macroprudential unit under consideration.
  - The cross-institutional group would meet regularly in stable times (e.g., one a quarter or semi-annually) and daily in crisis.

### Cross-border cooperation and exposures
- International exposures:
  - Approximately half of international loan exposure is concentrated in the United Kingdom and the United States, with significant additional exposure in Mexico, Brazil, and Turkey.
  - Most international exposure reflects loans to households and non-financial corporations; loans to SMEs at the international level experienced most growth.
- Cross-border arrangements:
  - ECB and SRB are cross-border counterparts for BdE and FROB within the Banking Union; resolution decisions within the EU are automatically recognized under SRM rules.
  - FROB has voting rights and representation in the SRB; BdE and FROB Resolution Departments participate as observers in Crisis Management Groups (CMGs) for Banco Santander and BBVA.
  - BdE has signed MOUs with major non-European jurisdictions to allow regular information exchange and cooperation in developing resolution strategies.
- Structural implications:
  - Spanish large banks with autonomous subsidiary structures (e.g., Santander, BBVA) permit segregation of subsidiaries in failure scenarios and have prompted MPE strategies.

### Key statistics and system structure
- Banking system accounts for about three-fourths of financial sector assets.
- Deposit guarantee limit: €100,000 per depositor and credit institution.
- Institution counts:
  - 14 Significant Institutions (SIs).
  - 56 Less significant institutions (LSIs).
  - 13 smallest institutions eligible for simplified recovery plans; 2 of 13 simplified plans approved.
  - 41 remaining LSIs prepared full recovery plans; 39 of those 41 approved.
- SRB prepared resolution plans for 10 SIs during 2016 with an additional two transitional plans prepared in 2017.
- FGD fund levels:
  - Current level: 0.25 percent of covered deposits.
  - Target level: 0.8 percent of covered deposits by 2024.
- SRF build-up period: 2016–2023; SRF target: one percent of covered deposits.
- FGD payout objective: seven working days; interim target: 20 working days by end-2018.

### Main policy recommendations (selected)
- Institutional arrangements:
  - Establish a cross-institutional entity for risk evaluation and crisis management. Priority: Short term. Authority: MoE.
  - Consolidate FROB and the Resolution Department of the BdE. Priority: Medium term. Authority: MOE.
  - Include the FGD in any cross-institution entity for crisis management. Priority: Immediate. Authority: MOE.
- Crisis prevention:
  - Ensure risk profile of LSIs is monitored and updated frequently. Priority: Immediate. Authority: BdE.
- Crisis management and resolution regime:
  - Continue development of manuals, checklists and staff training for the new resolution tools introduced through BRRD transposition. Priority: Immediate. Authority: BdE/FROB.
  - Develop a strategy and legal tools for resolving LSIs located in regions where there are few alternative institutions. Priority: Immediate. Authority: MOE, BdE/FROB.
- Safety net arrangements (FGD-focused):
  - Conduct crisis simulations at the institutional level (BdE, FROB). Priority: Short term. Authority: BdE/FROB.
  - Conduct crisis simulations at a cross-agency level. Priority: Medium term. Authority: MOE.
  - Enhance the ability of FGD to payout deposits in a timely manner. Priority: Short term. Authority: FGD.
  - Establish an emergency/back-up liquidity system for FGD. Priority: Short term. Authority: BdE/MoE.
  - Ensure that FGD has a voice in any use of its funds for resolution. Priority: Medium term. Authority: MOE.
  - Consider making FGD a fully owned government institution and remove private bankers from the Board. Priority: Medium term. Authority: BdE/MoE.

*Source: EXECUTIVE SUMMARY and extracted chapter content, Spain, IMF Financial Sector Assessment (Technical Note), CR17341.*

### EXECUTIVE SUMMARY ___________________________________________________________________________ 4

### EXECUTIVE SUMMARY

### Institutional arrangements and legal framework
- The transposition of the Bank Recovery and Resolution Directive (BRRD) into Spanish law strengthened the resolution regime in Spain.
- The BRRD and the Single Resolution Mechanism Regulation (SRMR) are closely aligned with the Financial Stability Board (FSB)’s Key Attributes of Effective Resolution Regimes for Financial Institutions (KAs).
- At the Banking Union level:
  - The Single Supervisory Mechanism (SSM) supervises all the significant entities.
  - The Single Resolution Board (SRB) is the resolution authority for significant entities and cross-border groups.
- In Spain:
  - The BdE is both the supervisor and shares responsibility for resolution planning with the SRB.
  - FROB is the resolution authority that approves and implements the resolution schemes.
- Responsibility split:
  - 14 institutions identified as Significant Institutions (SIs) are supervised by the ECB with operational support from the BdE.
  - 56 remaining Less significant institutions (LSIs) are the direct responsibility of the BdE, which is responsible for supervision and Resolution and Recovery Planning (RRP) but operates under general oversight of the ECB and the SRB.
- The implementing national legislation contains a broad set of resolution tools and establishes a framework for improved recovery and resolution planning as well as coordination across the EU.

### Crisis prevention and recovery planning
- Recovery plans:
  - Recovery plans are prepared by banks and reviewed by supervisory authorities.
  - The ECB and BdE have received recovery plans from most institutions.
  - All of the 14 SIs have approved recovery plans.
  - The 56 LSIs: BdE has authorized simplified recovery plans for the 13 smallest institutions.
    - BdE has approved 2 of 13 simplified plans.
    - The remaining 41 LSIs have all prepared full recovery plans, of which 39 have been approved.
- Simplified recovery plans may require fewer stress tests, less frequent updating (possibly every three years), and only a minimum list of financial indicators.
- Update frequency:
  - SIs update their plans annually or when there is a material change.
  - Some smaller LSIs have a longer period between updates, sometimes lasting up to three years.
- Recommendation: Supervisory oversight should ensure recovery plans are updated whenever there is a change in the entities’ risk profile.

### Crisis management and resolution regime
- Resolution planning and responsibilities:
  - All banks in the EU are subject to resolution planning requirements.
  - For SIs, the SRB prepares resolution plans with participation of the BdE and FROB through Internal Resolution Teams (IRT).
  - For LSIs, the BdE is responsible for preparing resolution plans and assessing resolvability; BdE shares them with FROB (which issues a non-binding report) and then with the SRB for review and consistency checks; the BdE gives final approval; FROB executes all resolution schemes for both SIs and LSIs.
- Preferred resolution strategies:
  - The SRB developed resolution plans for 10 SIs during 2016 with an additional two transitional plans prepared in 2017.
  - The SRB has adopted a multiple point of entry resolution model for the two global banks (BBVA and Santander).
  - For most remaining SIs (not holding companies and without significant global operations), resolution will use BRRD tools including sale of business, bail-in, or a combination including the creation of a bridge bank.
- Entry into resolution:
  - Resolution is a two-staged process: (i) determination that the institution is failing or likely to fail (F/LF), and (ii) review of other conditions for resolution (no reasonable prospect for a private-sector solution and that resolution is in the public interest).
  - For SIs, both the ECB and the SRB can determine F/LF; for LSIs, only the BdE may make such determination.
  - For SIs, the resolution scheme requires the European Commission’s approval, which may result in amendments and may involve the Council of the European Union in certain situations.
  - The decision to find an entity F/LF by authorities is subject to review by the Spanish courts, but the court cannot reverse the decision.
- Resolution tools introduced under the BRRD:
  - The BRRD introduced four principal resolution tools for SIs: (i) sale of business, (ii) establishment of a bridge bank, (iii) an asset separation power, and (iv) bail-in powers.
  - Spanish authorities opted not to include the optional government stabilization tools authorizing nationalization and the use of government financing.
  - FROB has the legal authority to exercise the resolution tools and needs no additional legal authority to implement the tools; there are no regulations or circulars that must be drafted to operationalize the resolution tools, including bail-in powers.
- Operational challenges:
  - Financing the operations of bridge bank and asset separation tools remains under review.
  - Not all SIs hold an adequate level of loss-absorbing securities to implement a recapitalization.
  - MREL requirements and the transition period to meet them are yet to be determined due in part to ongoing review of MREL regulations.
- LSIs challenges:
  - Some small LSIs play critical regional roles; in certain areas a single LSI may be the only provider of financial services.
  - Resolution tools for such LSIs are limited; mergers and acquisitions by other institutions may or may not be viable.
  - Options to consider: accelerate placement of loss-absorbing securities; create a resolution fund financed by the industry; enhance supervision and capital requirements for unresolvable LSIs.

### Safety net, Deposit Guarantee Fund (FGD), and cross-agency coordination
- Role of FGD:
  - Deposit protection is a central pillar of bank resolution; the FGD is a simple pay box plus, responsible for paying depositors and providing some resolution financing.
  - The FGD manages industry funds and has fiduciary responsibilities; its perspective in crisis management is useful.
- Operational improvements and needs:
  - A schedule of stress tests will be run to examine robustness of internal systems.
  - Organizational and procedural changes are needed if the FGD is to meet its objective of paying out deposits in seven working days.
  - The revenue base of the FGD could be strengthened.
  - A source of emergency back-up funding for depositor payout should be introduced to ensure private sector confidence in the insurance system.
  - Safeguards surrounding the use of deposit insurance funds in resolution should be strengthened; if FGD resources are to be used, it should participate in resolution decisions.
  - Current governance: private bankers participate on the Board; restrictions exist on directors participating in discussions of their own bank, but firewalls could be strengthened. Private sector participants should be restricted from any discussion of any specific bank in the financial system.
  - As firewalls are established, the FGD should also participate in any inter-governmental crisis group (as manager of the funds).
- Systemic crisis management:
  - Tools needed to resolve an idiosyncratic bank failure differ from those needed to manage a systemic crisis; cross-institutional coordination is essential in systemic cases.
  - Consideration could be given to establishing a cross-institutional forum or entity to monitor emerging risks and coordinate policy responses; one option is to rely on the proposed Systemic Risk Board to fulfill this function (see aide-memoire).

### Crisis simulations and preparedness
- Recommendation: Conduct crisis simulations to operationalize new resolution instruments.
  - Individual authority exercises (e.g., FROB and the BdE) to test internal systems.
  - Coordinated systemic crisis exercises to test mechanisms for sharing diagnoses, information sharing among agencies, and ability to develop coordinated policy responses.

### Key statistics and system structure
- Banking system accounts for about three-fourths of financial sector assets.
- Deposit guarantee limit: 100,000 euros per depositor and credit institution.
- Institutions counts:
  - 14 Significant Institutions (SIs).
  - 56 Less significant institutions (LSIs).
  - 13 smallest institutions eligible for simplified recovery plans; 2 of 13 simplified plans approved.
  - 41 remaining LSIs prepared full recovery plans; 39 of those 41 approved.
- SRB prepared resolution plans for 10 SIs during 2016 with an additional two transitional plans prepared in 2017.
- FGD payout objective: seven working days.

### Main policy recommendations (excerpted from Table 1)
- Institutional arrangements:
  - Establish a cross-institutional entity for risk evaluation and crisis management. Priority: Short term. Authority: MoE.
  - Consolidate FROB and the Resolution Department of the BdE. Priority: Medium term. Authority: MOE.
  - Include the FGD in any cross-institution entity for crisis management. Priority: Immediate. Authority: MOE.
- Crisis prevention:
  - Ensure risk profile of LSIs monitored and updated frequently. Priority: Immediate. Authority: BdE.
- Crisis management and resolution regime:
  - Continue development of manuals, checklists and staff training for the new resolution tools introduced through the transposing of the BRRD. Priority: Immediate. Authority: BdE/FROB.
  - Develop a strategy and legal tools for resolving LSIs located in regions where there are few alternative institutions. Priority: Immediate. Authority: MOE, BdE/FROB.
- Safety net arrangements:
  - Conduct crisis simulations at the institutional level (BdE, FROB). Priority: Short term. Authority: BdE/FROB.
  - Conduct crisis simulations at a cross-agency level. Priority: Medium term. Authority: MOE.
  - Enhance the ability of FGD to payout deposits in a timely manner. Priority: Short term. Authority: FGD.
  - Establish an emergency/back-up liquidity system for FGD. Priority: Short term. Authority: BdE/MoE.
  - Ensure that FGD has a voice in any use of its funds for resolution. Priority: Medium term. Authority: MOE.
  - Consider making FGD a fully owned government institution and remove private bankers from the Board. Priority: Medium term. Authority: BdE/MoE.

*Source: EXECUTIVE SUMMARY, Spain, IMF Financial Sector Assessment (Technical Note).*

### 4. The treatment of nonbank institutions is covered in companion Technical Notes. This

### 4. The treatment of nonbank institutions is covered in companion Technical Notes. This

### Institutional Arrangements
- European Level — Prudential supervision
  - Prudential supervision in Spain falls under the scope of the SSM.
  - The ECB, with support from the BdE, directly supervises banks identified as “significant institutions” (SIs) based on criteria including balance sheet size.
  - Less significant institutions (LSIs) are supervised by national supervisory authorities but under a common legal framework derived from the CRD IV/CRR, the BRRD, and EBA standards and guidelines.
  - The SSM has identified 14 institutions as SIs, representing more than 90 percent of total banking system assets.
  - The ECB conducts supervision of these banks through Joint Supervisory Teams (JSTs), which are co-led by the BdE and are responsible for reviewing the recovery plans prepared by the institutions.
  - The BdE has responsibility for supervising LSIs, while the ECB oversees that supervision and reviews supervisory results to ensure consistent application of high supervisory standards.

- National Level — Safety net institutions
  - Institutional structure of safety net is composed of:
    - Ministry of Economy, Industry and Competitiveness.
    - Banco de España, supervisory authority and preventive resolution authority.
    - FROB, executive resolution authority.
    - Deposit Guarantee Fund.
  - The BdE supervises 56 LSIs including savings banks and credit cooperatives plus other financial institutions (foreign branches, specialized lending institutions, electronic money institutions, payment institutions, mutual guarantee and re-guarantee companies, currency exchange establishments, and valuation companies).

### Institutional Arrangements for Bank Resolution
- European Level — SRM and SRB
  - Bank resolution within the Banking Union falls under the Single Resolution Mechanism (SRM).
  - The Single Resolution Board (SRB) exercises responsibility for developing specific resolution options and resolution decision-making through SRB-led IRTs, which include staff from the BdE and FROB.
  - The SRB’s responsibility includes all SIs, all cross-border banks, and any LSI where resolution requires use of the Single Resolution Fund (SRF).
  - FROB is responsible for executing all resolution schemes.
  - Once the ECB (or the SRB) determines that the institution is failing or likely to fail, the SRB begins the resolution process, requests asset valuation information, determines private sector solutions, and assesses the public interest in resolving the bank.
  - Footnote: The SRB can request the ECB to review a financial entity to determine if it is F/LF and the ECB must respond within three days. If the ECB, within three calendar days upon receipt of that information, does not make such an assessment, the SRB may also make it.

- National Level — Spanish transposition and authorities
  - In November 2015, the BRRD was transposed into Spanish legislation introducing resolution tools: sales of business, bridge banks, P&A, and bail in authority; the legislation does not include the two optional government stabilization tools, equity support and temporary government ownership.
  - The BdE, as resolution authority for LSIs, prepares resolution plans for each LSI and conducts resolvability assessments; most plans updated annually; 13 groups have simplified resolution plans that may be updated less frequently.
  - Once prepared, BdE plans are submitted to FROB (required to issue a non-binding report) and to the SRB (which reviews consistency with European rules and guidelines).
  - FROB manages restructuring and resolution for SIs and LSIs, created in 2009, powers enhanced by Law 11/2015; FROB is 100 percent state-owned.
  - FROB Governing Committee composition: FROB’s Chairman (Chair), Deputy Governor of the BdE (Vice Chair), three other representatives from the BdE, three representatives from the Ministry of Economy, Industry and Competitiveness, the Vice-Chair of the CNMV, and two representatives from the Ministry of Finance; meetings attended by a representative from the State General Comptroller and the State Legal Service.
  - FROB receives supervisory information from the BdE on LSIs, prepares resolution schemes, submits schemes to the SRB for consistency with EU rules, collects and manages the Spanish Resolution Fund, and coordinates Spanish resolution authorities in international fora including representation in SRB Plenary and Extended Executive Meetings.
  - The Deposit Guarantee Fund (FGD) is a private institution guaranteeing bank deposits up to €100,000; FGD has a Board with representation from both the government and the industry; all deposit-taking institutions must be a member of the FGD; the FGD fund is financed by contributions from the industry.
  - Within the SRB, a Task Force on Crisis Management includes BdE and FROB and drafts a crisis management manual, operationalizes the bail-in tool, and analyzes interaction between bail-in and normal insolvency proceedings.
  - Nationally, the Financial Stability Committee (“Comité de Estabilidad Financiera”—CESFI) was established in 2006, chaired by the Secretary of State for Economy and composed of key financial authorities; expected to meet at least twice a year; last meeting took place in April 2013.

### Institutional Recommendations (paragraph 18)
- Strengthen and complement institutional framework with arrangements for crisis preparedness and management:
  - Consider establishing a cross-institutional forum or entity to monitor emerging risks and coordinate policy responses to financial distress; options include re-invigorating CESFI or expanding the role of the macroprudential unit under consideration (see Section IV).
  - Consider consolidation of resolution functions (Resolution Department of the BdE and FROB) to enhance effectiveness: options include merging FROB into the BdE or merging the BdE’s resolution unit into FROB while maintaining FROB as an independent agency.
    - Benefits of merging into the BdE: enhanced coordination and information sharing.
    - Benefits of a separate resolution agency: clear independence and unambiguous mandates.
    - Regardless of consolidation, eventually separate a holding company function for failed institutions from the resolution agency as skills needed are distinct.
  - Bring the FGD into crisis management framework as functions mature, given FGD’s role in paying depositors and financing some aspects of resolution.

### Crisis Prevention Regime
- Recovery Planning — European Level
  - All banks in the EU are subject to recovery planning requirements.
  - Recovery plans identify measures for when an institution is under distress but remains a “going concern.”
  - Full recovery plans should include: (i) description of essential operations, (ii) description of critical functions and core business lines, (iii) measures to decrease the institution’s risk profile, (iv) capital conservation measures, and (v) strategic options such as divestiture of business lines; plans may include measures to restructure liabilities and should provide firm’s views on resolution scenarios, triggers for recovery actions, and processes for valuing critical functions.
  - Plans are expected to be updated annually.

- Recovery Planning — National Level (Spain)
  - All financial institutions in Spain are required to prepare recovery plans.
  - The ECB reviews plans for SIs and delegates review of LSIs to the BdE; resolution authorities (SRB for SIs and FROB for LSIs) also review recovery plans; the ECB reviews for completeness and consistency.
  - All 14 SIs have submitted full recovery plans.
  - Recovery plans for 54 LSIs are tailored; BdE allows the smallest institutions to prepare simplified recovery plans.
    - There are 13 of the 54 institutions with simplified recovery plans, which require fewer stress tests, more infrequent updating (possibly every three years), and only a minimum list of financial indicators.
    - For the remaining 41 LSIs, the BdE requires full recovery plans.
  - While all LSIs have presented recovery plans, the BdE has not approved any to date; final decision is expected by September 2017.
  - Plans reviewed thus far have limitations: inadequate information to evaluate recovery options, only broad outlines of methodology and valuation assumptions, lack of full assessment of impact of recovery options, insufficient communication plans, and limited descriptions of implementation.

- Early Supervisory Intervention
  - Early supervisory intervention measures are adopted by the ECB (for SIs) or BdE (for LSIs).
  - Triggers for early intervention include: a low Supervisory Review and Evaluation Process (SREP) rating (an overall SREP score of 4 or below), deterioration of key financial indicators, or any other significant event affecting viability.
  - The ECB and BdE may direct changes in business strategy, implement elements of recovery plans, remove or replace senior management or management body members, or appoint a “temporary administrator” to carry out management functions.

- Recommendations on Recovery Plans (paragraph 26)
  - Updating recovery plans is critical to ensure effectiveness.
  - SIs update plans annually or when material changes occur.
  - Some LSIs update every three years; consideration could be given to ensuring recovery plans are updated whenever there is a change in entity’s risk profile; if burdensome, ensure critical elements are updated more frequently.

### Crisis Management and Resolution Regime
- Resolution Planning and Resolvability Assessments — European Level
  - All banks in the EU are subject to resolution planning requirements prepared by authorities and may include wind-down scenarios and actions to maintain critical economic services (payment services, insured deposits, preservation of core business lines and operations).
  - For SIs, the SRB prepares resolution plans through IRTs composed of staff from SRB, BdE, FROB, and other resolution authorities.
  - Content of plans determined by final draft of the Regulatory Technical Standards (RTS) on resolution plans.
  - Resolvability assessment ensures maintenance of critical business lines and material legal entities across market environments and identifies impediments to orderly resolution; SRB works with institutions to address impediments.
  - Preferred resolution strategy differs among institutions: resolution plans were approved by SRB for 10 institutions during 2016 with an additional two transitional plans prepared.
    - SRB has supported a multiple point of entry resolution model for two global banks (BBVA and Santander) given corporate structures with independent subsidiaries.
    - Most remaining SIs are not holding companies and own subsidiaries wholly in Spain; SRM will rely on BRRD tools including sale of business, bail-in, or combining tools with bridge bank creation.

- National Level — LSIs
  - All banks nationally are subject to resolution planning irrespective of size; BdE is responsible for preparing resolution plans and assessing resolvability for LSIs.
  - Plans are sent to FROB for mandatory issuance of a non-binding report.
  - FROB receives plans, provides input and suggests modifications before submission to SRB.
  - FROB has received four resolution plans thus far with an additional 25 expected to be submitted in 2017.
  - Most resolution plans include sale of business, bail-in, or a combination that includes bridge bank creation.

- Entry into Resolution
  - The BRRD lays out conditions for entry into resolution: initiated when institution is failing or likely to fail.
  - The resolution agency determines whether there is no reasonable prospect for private-sector measures or supervisory action and whether resolution action is in the public interest.
  - An institution is failing or likely to fail when:
    - (i) it does not or will not soon meet prudential regulations,
    - (ii) it is or will soon be insolvent,
    - (iii) it is unable to pay debts or other liabilities, or
    - (iv) it requires extraordinary public support.
  - The public interest condition is met when resolution actions rather than insolvency proceedings can achieve resolution objectives including continuation of critical functions, avoidance of financial instability, and protection of public funds and depositors.

*Source: cr17341 - 4. The treatment of nonbank institutions is covered in companion Technical Notes. This*

### 34. The resolution procedures for banks in Spain will depend on whether they are

### 34. The resolution procedures for banks in Spain will depend on whether they are

### Institutional responsibilities: Significant Institutions (SIs) and Less Significant Institutions (LSIs)
- Classification and responsible authorities:
  - SIs: appropriate resolution agency is the SRB; prudential oversight and certain determinations involve the ECB.
  - LSIs: appropriate resolution agency is the FROB; prudential oversight is by BdE/Supervision.
- SRB process for SIs:
  - The ECB and the SRB, after mutual consultation, may determine if an SI institution is F/LF.
  - Once designated F/LF, the SRB determines if the other two conditions for resolution are met.
  - Based on the previously approved resolution plan, the SRB requests updated information, undertakes evaluation, and begins a search for possible acquirers.
  - The SRB, through the IRT, prepares a resolution scheme that updates strategy, identifies specific resolution tools and any need for public funding from the SRF.
  - Approval and endorsement procedure:
    - Scheme must be approved by the ‘extended’ Executive Session of the SRB (SRB Chair, four full-time Board Members, and the Board Members representing the relevant NRAs).
    - The scheme must be endorsed by the European Commission, which may object to discretionary aspects; objections require SRB amendment.
    - The Commission needs the EU Council’s approval when it wants to object to the scheme for not meeting the public interest condition or to approve or object to a material modification of the amount needed from the SRF.
    - The resolution scheme enters into force 24 hours from the transmission by the SRB of the scheme if no objection has been expressed by the Commission or the EU Council.
- FROB and LSIs:
  - BdE, as the national competent authority, supervises LSIs and triggers the F/LF.
  - Based on the SREP assessment and its own assessment, FROB may request that the BdE review a given institution; BdE must respond within three days.
  - FROB does not have the authority to trigger the F/LF; the SRB is informed of any decision to trigger F/LF.
  - Once an institution is determined to be F/LF, FROB begins the resolution process: assesses private alternatives, the public interest, reviews valuation, and assesses alternative resolution options.
  - Final resolution proposal is prepared by FROB and the SRB; the SRB is responsible for approval if the scheme involves use of the SRF.
  - Once the SRB has approved the plan, FROB will begin implementing the resolution process.
- Role of the courts:
  - The decision to trigger F/LF by the BdE is subject to review by the Spanish courts.
  - Spanish legislation provides that all persons affected by a decision taken by any administrative authority, including resolution and bail-in, can appeal.
  - If the court decides against the decision, it may provide for compensation for the loss suffered by the applicant but it cannot reverse the decision.
  - Lodging of an appeal will not result in a suspension of the decision.
  - FROB may request courts to place a stay of action on any judicial proceedings if such a stay is necessary for effective resolution.

### Direct resolution responsibilities (summary from Table 2)
- Pre-Resolution:
  - Prudential oversight: ECB (SIs); BdE/Supervision (LSIs)
  - Review of recovery plans: ECB (SIs); BdE/Supervision (LSIs)
  - Assess resolvability: SRB (SIs); BdE/Resolution (LSIs)
  - Prepare resolution plan: SRB (SIs); BdE/Resolution (submitted to supervisor, FROB and SRB) (LSIs)
- Early Intervention:
  - Identify supervisory measures: ECB (SIs); BdE/Supervision (LSIs)
  - Monitor implementation: ECB (SIs); BdE/Supervision (LSIs)
  - Obtain valuation data: SRB (SIs); FROB (w/ BdE) (LSIs)
  - Propose search for acquirers: SRB (SIs); FROB (w/BdE) (LSIs)
- Initiation of resolution:
  - Determine F/LF: ECB or SRB (SIs); BdE/Supervision (LSIs)
  - Assess private solutions: SRB (SIs); FROB (LSIs)
  - Assess public interest: SRB (SIs); FROB (LSIs)
  - Assess need for public funds: SRB (SIs); FROB (LSIs)
  - Develop resolution schemes: SRB (SIs); FROB (LSIs)
- Resolution:
  - Approve resolution scheme: SRB with formal approval of COM and possibly EU Council (SIs); FROB (LSIs)
  - Apply resolution tools: FROB (SIs and LSIs)

### Resolution strategies and tools (European and national level)
- BRRD principal tools (introduced by BRRD):
  - (i) sale of business
  - (ii) establishment of a bridge bank
  - (iii) an asset separation power
  - (iv) bail-in powers
  - Optional government financial stabilization tools exist under BRRD; supporting powers include appointment of a special manager and stays on the right to terminate contracts or execute collateral.
- Bail-in:
  - Permits write down of creditor liabilities and their conversion into equity.
  - Flexibility to exclude liabilities from bail-in is constrained; BRRD permits some liabilities to be excluded by allowing departure from strict pari passu treatment.
  - BRRD prescribes that no creditor should be worse off as a result of resolution than if the bank had entered insolvency.
- Resolution models:
  - SIs: resolution strategy based on either single-point-of-entry (SPE) or multiple-point-of-entry (MPE).
  - For G-SIBs, SRM assumes bail-in exercised under an SPE for cost effectiveness.
  - Spanish institutions with significant cross-border presence (Santander and BBVA) are structured as independent subsidiaries; authorities have opted for an MPE strategy for those groups.
  - Most of the remaining 12 SIs operating in the Spanish market are not holding companies and do not have significant foreign subsidiaries; SRB likely to address failures at subsidiary level using BRRD tools including sale of business, bail-in, or bridge bank.
- Operationalization challenges:
  - Mechanics of bridge bank and asset separation are well established, but financing operations remains under review.
  - Use of bail-in powers requires institutions to hold adequate levels of bail-inable securities; not all SIs hold an adequate level.
  - MREL requirements are still under development; Commission reviewing MREL regulations to bring them more in line with TLAC rules.
  - Revised MREL regulation will become effective only a year after it is approved.
- National transposition and limitations:
  - In November 2015, BRRD was transposed into Spanish legislation; tools available mirror BRRD: sales of business, bridge banks, asset separation, bail-in.
  - Spanish legislation did not transpose two optional government stabilization tools: equity support and temporary government ownership.
- Resolution approaches for LSIs:
  - For mid-sized institutions: resolution may entail merger or sale via competitive bidding, transfer of assets/liabilities to viable bank, transfer to an AMC, or financial support through bail-in.
  - For smaller institutions: likely use of bridge bank or sale of business.
  - FROB has legal authority to exercise tools; no additional legal authority required; FROB drafting manuals and step-by-step procedures.
- Challenges for small regional LSIs:
  - Some small LSIs may be the only provider of financial services in a region; mergers/acquisitions or sale may be difficult due to lack of partners.
  - Such institutions primarily hold deposit liabilities and may have no bail-in-able liabilities.
  - Recommendation: these firms should issue unsecured securities to hold as loss-absorbing liabilities, but market for such paper is narrow and illiquid.
  - Authorities need resolution strategies that preserve banking services in such areas.

### Resolution funding: MREL and the Single Resolution Fund (SRF)
- MREL (Minimum Requirement for Own Funds and Eligible Liabilities):
  - SRB will require institutions to hold sufficiently high quality MREL, issued at appropriate levels in the company.
  - MREL levels are determined case-by-case and may vary among institutions.
  - Levels are set based on the institution’s total liabilities (including own funds), and currently set on a preliminary basis at twice the sum of Pillar 1 and the new Pillar 2 Requirement plus capital buffers, or twice the leverage ratio, whichever is higher.
  - Eligible securities must have maturities longer than one year and be unsecured.
  - Commission is considering changes to MREL to reduce differences with TLAC; possible changes include:
    - (i) shift in the denominator from total liabilities (including own funds) to risk-based assets,
    - (ii) establishment of a minimum level of MREL for G-SIBs, although case-by-case setting would continue,
    - (iii) calculation of MREL at resolution entity level consistent with both MPE and SPE,
    - (iv) setting eligibility of instruments as outlined in the TLAC Term Sheet.
- Single Resolution Fund (SRF):
  - SRF receives ex ante contributions from all euro-area banks; established by SRM Regulation; owned and administered by SRB.
  - SRF replaces national resolution funds mandated by the BRRD.
  - SRF will be built up during the period 2016–2023 and is targeted to reach one percent of covered deposits.
  - SRF may be used for resolution of SIs and LSIs in conjunction with BRRD-authorized resolution tools.
  - In Spain, FROB collects contributions from both SIs and LSIs.
  - SRF use constraints and safeguards:
    - SRF may be used only as last resort for financing resolution.
    - Fund may guarantee assets or liabilities, make loans to, or purchase assets of the institution under resolution; can contribute to a bridge institution.
    - Before SRF can be triggered, shareholders must have absorbed losses and creditors bailed in for a total of eight percent of total liabilities.
    - Contribution from the SRF cannot exceed five percent of total liabilities.
- National funding sources and constraints:
  - BdE ensures each financial institution has sufficient liabilities to meet MREL; BdE tasked with establishing minimum MREL for each LSI based on risk profile.
  - To date, BdE has not established MREL requirements.
  - FROB can draw on two main sources for restructuring:
    - Recapitalization through bail-in of securities.
    - Funds held by the FGD, subject to safeguards; FGD can be used for transfer of assets to an acquiring bank or to assist the acquirer; FROB can use funds indirectly as loss absorption or as liquidity.
  - All institutions subject to MREL requirements, but LSIs may face serious challenges meeting them due to thin market for securities and limited investor demand.
  - Loss-absorbing liabilities for weaker, regionally critical institutions may be limited to bank equity and subordinated debt where available.

### Recommendations
- Continue operationalization:
  - Progress has been made in operationalizing BRRD resolution tools; maintain and continue these efforts.
  - Procedures should be available and tested in an expedient manner.
- Crisis simulations:
  - Run two types of simulations:
    - First: individual agency tests (FROB and BdE) — formal tabletop exercises or unannounced scenario tests to evaluate internal systems and rapid response capability.
    - Second: coordinated systemic crisis exercise — examine and test mechanisms for sharing diagnoses, information sharing among agencies, and development of coordinated policy response across agencies.
- Resolution strategy for small locally essential LSIs:
  - Develop a comprehensive strategy for resolution of regional institutions that are the only source of banking services to a region.
  - Consider ways to accelerate placement of loss-absorbing securities or create a resolution fund financed by the industry to provide financing for smaller institutions.
  - If an institution is unresolvable using available tools, supervisory authorities should be attentive to risk buildup and consider enhanced capital requirements.

### Safety net and crisis management arrangements
- European level:
  - A Task Force on Crisis Management was created in the SRB with participation from Bank of Spain and FROB.
  - Main tasks include drafting a crisis management manual, operationalizing the bail-in tool, and analyzing interaction between bail-in and normal insolvency proceedings.
- National/local level:
  - Financial Stability Committee (CESFI) was established in 2006 to oversee systemic risk and be a forum for policymaking and crisis management; CESFI has not met since April 2013.
- Current assessment:
  - An effective crisis management framework remains elusive.
  - The resolution framework is more effective for idiosyncratic bank failures than for systemic crisis management.
  - Resolving an institution is only one facet; as systemic pressures develop, tools for individual failures could be counterproductive.
  - Arrangements are needed for coordinated analysis of emerging pressures and consensus on policy responses.

*International Monetary Fund — CR17341 (extracted chapter content)*

### 61. The authorities have not conducted crisis simulation exercises, either on an individual

### 61–80: Cross-Border Cooperation, Deposit Insurance Regime, and Recommendations

### Crisis Simulation Exercises
- The authorities have not conducted crisis simulation exercises, either on an individual agency basis or as a multi-agency exercise.  
- Such simulations are useful in identifying technical limitations to data collections and data sharing, and in highlighting how policy making can occur in a period of stress and uncertainty.  
- Recommendation (74, 75):  
  - Establish a crisis management framework: a cross-institutional forum to monitor emerging risks and coordinate policy responses. Options include re-invigorating the CESFI, relying on the proposed Systemic Risk Board, or using the macroprudential unit.  
  - The group would meet regularly in stable times (i.e., one a quarter or semi-annually) and meet daily in crisis to manage response.  
  - Conduct systemic crisis simulation exercises ranging from single-bank to comprehensive simulations to clarify roles, responsibilities, gaps, and methodological shortcomings.

### Cross-Border Exposures and Cooperation (paragraphs 62–65)
- Spanish banks have significant cross border exposures.  
- Geographic concentration of international loan exposure: approximately half of the international exposure by loans is concentrated in the United Kingdom and the United States, with significant additional exposure in Mexico, Brazil, and Turkey.  
- Most international exposure reflects loans to households and non-financial corporations; loans to SMEs at the international level experienced most growth.  
- Resolution and supervisory arrangements:  
  - The ECB and the SRB are the cross-border counterparts for the BdE and FROB concerning resolution of institutions within the Banking Union. Resolution decisions taken within the EU are automatically recognized and are subject to the rules of functioning of the resolution colleges (SRB, FROB and BdE).  
  - FROB has voting rights and the formal representation of the Spanish authorities in the SRB. The Resolution Departments of BdE and FROB participate as observers in the Crisis Management Groups (CMGs) of Banco Santander and BBVA Groups.  
  - Two of Spain’s banks have significant overseas exposure; one of them, Santander, is a designated G-SIFI. These banks have adopted a business model that treats subsidiaries as autonomous entities; authorities argue cross-border subsidiaries could be resolved without parent support as they are funded in local markets and subject to host-country resolution plans. Institutional organizational structures permit segregation of subsidiaries in the event of failure.  
  - For subsidiaries of SIs outside the Banking Union, the ECB establishes colleges of supervisors chaired by the ECB as consolidating supervisor; college tasks are performed at least on an annual basis. College membership/observer decisions are based on a mapping exercise identifying group entities and their significance for local markets and the group.  
  - The BdE has signed MOUs with the major non-European jurisdictions to allow regular information exchange and cooperation in developing resolution strategies.

### Deposit Insurance Regime — FGD (paragraphs 66–73)
- Establishment and governance:  
  - The deposit insurance agency (FGD) was established in 2011 by combining three separate sectorial insurance funds.  
  - The fund is a private institution with representation from both the government and the industry. The Board has 11 members: 2 representing the government, 4 appointed by BdE, and 5 representing industry. The President is the Deputy Governor of the BdE. Private sector representatives are asked to recuse themselves if their bank is discussed at the Board level. The Board does not receive information or discuss operating banks.  
- Funding and targets:  
  - The FGD is funded by the industry. The Board determines the annual contribution of banks. Premiums are based on the amount of covered deposits and are risk-based. Risk premiums are calculated using supervisory data provided by the BdE. Premiums are accumulated in the deposit insurance fund.  
  - The impact of the financial crisis in 2012 severely depleted the fund. The FGD has been accumulating resources and expects to increase the fund from the current level of 0.25 percent of covered deposit to the targeted level of 0.8 percent by 2024. This level is in line with the European Directive on deposit insurance. FGD also is permitted to accept payment commitments rather than actual payments so long as the commitments are secured and do not exceed 30 percent of available resources.  
- Coverage and role:  
  - Membership is mandatory for all credit institutions authorized in Spain; for institutions authorized in other EU member states, membership in the Spanish fund is voluntary. Coverage limits are in accordance with the EU Directive (€100,000 per depositor per institution). Effective coverage: 98 percent of all depositors being fully covered and 71 percent of the value of deposits fully covered.  
  - The FGD is responsible for deposit payout and financing resolution costs and would be classified as a pay box plus. The FGD begins the payout process once the BdE places an institution in resolution and the resolution authorities opt to liquidate the institution. The FGD does not receive early warning of failure nor does it have regular access to depositor data from operating banks.  
- Payout process and timelines:  
  - Once informed by the BdE or the Judicial Court declares bankruptcy, depositor payout can begin. The FGD must collect depositor information, clean data, identify payout mechanisms, and ensure adequate resources. The FGD notifies depositors by sending letters requesting return mail indicating the account for funds transfer; once received, the FGD makes a bank transfer to the indicated bank account. This process can take some time.  
  - Targets: eventual target of full payout within 7 working days after depositors lose access to their deposits and an interim target of 20 working days by end-2018. Under current arrangements, meeting such a target would be challenging.  
- Financing role and safeguards:  
  - FROB can draw on deposit insurance resources to finance selected resolution options, including funding transfers of assets and liabilities, funding bridge banks, supporting mergers, or preventing failure. Safeguards limiting FGD exposure to resolution costs:  
    - FGD resources cannot be used unless shareholders have first absorbed losses and 8 percent of liabilities have been bailed-in.  
    - Use of FGD funds cannot exceed the amount of depositor payout in the event of a liquidation.  
    - Use of funds cannot exceed 50 percent of the FGD’s targeted fund level (0.8 percent of covered deposits).  
    - Any institution receiving FGD funds must be under strengthened supervisory oversight.  
- Governance in resolution decisions and fiduciary concerns:  
  - The FGD does not participate in the decisions on whether to use its funds or how its funds are used. The FGD has a fiduciary responsibility to protect funds and to avoid “double jeopardy” where resources are used to restructure an institution that subsequently fails and requires FGD payout. The FGD should participate in inter-governmental agencies or meetings related to financial stability or resolution and in any inter-governmental crisis group. Under current Board structure, consideration could be given to recusing private sector Board members were the role of FGD to be expanded.  
- Emergency liquidity limitations:  
  - The FGD lacks any effective source of emergency liquidity financing. In the event of a shortfall, FGD may request extraordinary contributions from the industry or issue guaranteed bonds in the market. There is no emergency line of credit with the government or the BdE. Consequently, there could be market uncertainty about the FGD’s ability to meet obligations during market disruptions or multiple bank liquidations.

### Recommendations Specific to the FGD (paragraphs 76–80)
- Strengthen payout operations and data:  
  - Regularly test the quality of deposit data in banks through frequent and pre-announced tests; the FGD should have authority to ensure data production by all banks meets established standards.  
  - Identify banks that can act as payment agents; the FGD transfers deposits to appointed banks and depositors can either leave deposits in the new bank or move them to another bank of their choice.  
- Strengthen funding and liquidity arrangements:  
  - Bank premiums should be paid in cash; payment commitments, even when guaranteed, should be discouraged or, if possible, not accepted. To date the FGD has not accepted such commitments and that practice should continue.  
  - Agree with the Government on a formal line of credit that can be accessed as an emergency line of credit.  
  - Reduce the cap: the limit of 50 percent of the total fund available for resolution is high and could undermine the strength of the FGD. While this limit is in EU regulations, internal decisions on financing could voluntarily reduce the fund drawn from the deposit insurance fund.  
- Governance and participation in crisis decision-making:  
  - If FGD resources are to be used for purposes beyond payout, the FGD should participate in all decision-making meetings and in any inter-governmental crisis group as protector of the funds.  
- Medium-term structural option:  
  - Consider converting the FGD into a government agency with closer ties to safety net agencies. Benefits: allows the deposit insurer to be a full member of the public sector safety net, eases confidentiality concerns, and enables a robust emergency back-up funding arrangement to ensure private sector confidence. If converted to a fully owned public sector entity, private bankers should be removed from the Board, with their support maintained through a private sector advisory group for the FGD.

*Source: IMF country report text (paragraphs 61–80).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2017/cr17341.pdf_