## EXECUTIVE SUMMARY

## Source details

**Canonical URL:** [EXECUTIVE SUMMARY](https://www.imf.org/-/media/files/publications/cr/2018/cr18165.pdf)

## Other formats

- [Markdown version](/-/media/files/publications/cr/2018/cr18165.pdf.md)
- [Structured JSON version](/-/media/files/publications/cr/2018/cr18165.pdf.json)

---

### Background and scope
- Technical note basis: mission from October 31, 2017 to November 14, 2017 in Bucharest; provides stocktaking since 2010 FSAP and recommendations to enhance crisis preparedness and financial safety net.
- Coverage: crisis management and safety net supporting the banking system. Banking system accounts for 80 percent of total financial system assets; foreign-owned entities own 91 percent of banks’ assets.
- As of June 2017, there are 35 banking institutions, of which 14 are subsidiaries of groups under the remit of the Single Resolution Board (SRB), and seven are foreign banks’ branches.
- Framework assessed against international standards (Key Attributes, IADI principles) and IMF experience; not a formal compliance assessment.

### Main developments since the last FSAP
- Implementation of the Bank Recovery and Resolution Directive (BRRD) via Law No. 312/2015 (published December 11, 2015) came into force January 1, 2016, materially revamping Romania’s bank resolution and crisis management toolkit.
- NBR expanded powers as resolution authority to:
  - take control of an institution (intervention);
  - transfer shares/ownership instruments, rights, assets, or liabilities (purchase and assumption);
  - cancel debt instruments;
  - write down/convert eligible liabilities into common shares or other instruments of ownership (bail-in).
- Exceptional circumstances: public equity support and temporary public ownership may be applied after other tools exhausted.
- To date, none of the new tools have been exercised.
- NBR responsibilities expanded to enforce and analyze recovery planning requirements and prepare resolution plans; Supervision and Resolution Departments established criteria for handling failing banks.
- FGDB (Bank Deposit Guarantee Fund) responsibilities expanded beyond paybox: administrator of the bank resolution fund (created 2015), temporary administrator, special administrator of a credit institution under resolution, shareholder of a bridge institution, and shareholder of an asset management vehicle.
- Resolution fund on track to reach funding target by end–2024.

### Strengths and coordination
- NBR enhanced internal resolution and supervision organization, coordination across crisis management functions, and relevant powers.
- Inter-institutional coordination increased via information sharing agreements and participation in supervisory and resolution colleges for Romanian subsidiaries of foreign banks.
- Establishment of the National Committee for Macroprudential Oversight (NCMO) in 2017 was an important step; members appointed but NCMO not yet fully operational—Technical Commission on Financial Crisis Management should be activated.

### Remaining legal and operational gaps (priorities)
- Public procurement law applies to bank resolution actions and could seriously hinder swift action and constrain resolution options; authorities are implementing readiness actions but a comprehensive exemption from procurement law for bank resolution would be preferred.
- Legal protection for NBR officers exists for key decisions, but protection does not include staff from the Ministry of Public Finance (MoPF); this gap should be addressed.
- Formal legal instrument for MoPF support (contingent funding to FGDB if resources exhausted) has not yet been executed.
- NCMO not fully operational; Technical Commission should be activated to enhance crisis preparedness.

### Cross-border considerations and capital market implications
- Large presence of subsidiaries of major international banks under SRB authority requires intense cross-border coordination and a domestic capital market strategy to ensure Romanian interests are represented in resolution colleges and recovery planning.
- Resolution colleges primarily adopt a single point of entry approach for foreign parent groups; incorporating multiple point of entry strategies requires a medium-term plan to develop loss-absorbing eligible instruments in the domestic capital market.
- If multiple point of entry were adopted, resolution planning must ensure separability and autonomy of Romanian subsidiaries from their parent financially and operationally.

### Deposit insurance and FGDB operations — key statistics and recommendations
- As of June 2017 total funds administered by the FGDB amounted to US$1.6 billion, of which US$1.4 billion corresponded to the deposit guarantee fund and the rest belonged to the resolution fund.
- The deposit insurance fund is currently equivalent to 3.4 percent of eligible deposits, covering 99.5 percent of accounts.
- FGDB funding concentration: 73 percent (three quarters) of FGDB funds invested in Romanian sovereign securities; remainder deposited domestically in banks covered by the Fund.
- Resolution fund amounts to US$248 million (as of June 2017), which is about 60 percent of its target (1 percent of insured deposits).
- Recommendations for FGDB:
  - Diversify investment policy while preserving liquidity and security; migrate gradually towards first-rate paper from domestic and international issuers.
  - Obtain operational accounts at the central bank to reduce deposits in the banking system to minimum operational levels and increase flexibility/liquidity.
  - Be provided access to the NBR’s repo facility to obtain liquidity against treasury bills and other assets during reduced market liquidity.
  - Eliminate constraint that FGDB’s operational expenses be covered only from the yield of the Fund.
  - Implement resolution fund differentiation (lower liquidity requirements, FX holdings aligned with loan dollarization) and consider mechanism for asset swaps between funds.

### Emergency Liquidity Assistance (ELA) — gaps, constraints, and priorities
- NBR has liquidity provision framework based on traditional instruments and windows, but an operational ELA scheme is lacking; ELA arrangements provided in law not fully implemented and limited practical ELA experience exists.
- NBR provided ELA only once for three months in 2009.
- Practical collateral constraints: Regulation No. 3/2016 limits acceptable collateral mainly to government securities and cash from reserve requirements, severely limiting ELA options.
- FX liquidity considerations: 41 percent of banks’ liabilities are in foreign currency (including a sizable share of retail deposits); ELA framework must incorporate contingent plans for illiquidity in FX and increase types of assets accepted as collateral by the NBR.
- An operational ELA framework under development should be concluded, aligned with the ECB 2017 agreement, including establishing conditions, operational elements (charges, maximum terms), and broadening eligible collateral to a more diverse asset pool.
- Priority ELA actions:
  - Widen range of eligible collateral (other sovereign issuers, less liquid assets under pre-established criteria).
  - Establish internal objective parameters (e.g., adequacy of the Net International Reserves level) for opening FX liquidity windows with limits/conditions.
  - Test ELA features against realistic asset structures and ensure consistency with state-aid rules.

### Liquidation regime
- Romanian laws differentiate between liquidation scheme for banks and for nonfinancial corporates. New resolution framework updates Corporate Insolvency Law for bank liquidation.
- If resolution protocols for non-systemic banks fail to find viable alternative of lower cost than liquidation, NBR activates liquidation procedure administered by the judicial system.
- FGDB no longer acts as judicial liquidator. Once NBR Board decrees bank liquidation, FGDB has seven business days to reimburse holders of insured deposit accounts, then a syndicated judge takes responsibility for liquidating remaining assets and liabilities.
- Syndicated judge may request NBR opinion (advisory and optional). Limited judicial experience and detachment of NBR in liquidation cases could lead to protracted processes and loss of value.
- Recommendation: Amend Law No. 85/2014 to increase intrusiveness of NBR’s role during liquidation procedures; make consultations between syndicated judges and the NBR mandatory and a responsibility of the syndicated judge.

### Recovery and resolution planning, simulation exercises, and business continuity
- First round of plans initiated in 2016: all banks required to prepare recovery plans (individual or group level for cross-border cases); plans assessed by the NBR or consolidating supervisors and discussed in supervisory colleges.
- Resolution planning coverage (Resolution Department cycles started 2016):
  - currently cover 16 out of 22 subsidiaries of cross–border groups subject to consolidated supervision and nine domestic banks (under NBR remit), of which two domestic banks qualify as systemic (NBR order No. 12/2017).
  - 16 out of 22 subsidiaries represent 97 percent of the cross-border groups’ subsidiaries’ net assets as of June 2017.
- Findings from first cycle: material room for improvement, especially lack of specific actions for activities of some foreign subsidiaries in Romania; banks required to address them in a second cycle now in progress.
- Most resolution plans for foreign subsidiaries concluded Single Point of Entry (SPE) was most appropriate given shallow local bond market and lack of separability/autonomy.
- Simulation exercises and testing:
  - 2013 simulation exercise identified coordination and operational issues and need for comprehensive testing.
  - NBR developing detailed internal operational procedures; a simulation exercise planned for 2018 to test resolution procedures within the NBR; joint simulation exercises with MoPF and FGDB are planned.
  - FGDB simulation program: first exercise in 2017 tested information stream procedures; 2018 test planned to simulate pay-out for a medium-sized bank; 2019 exercise planned to assume deposit guarantee fund insufficient with external stakeholders as observers.
- Business continuity planning needs further entrenchment:
  - NBR has a Business Continuity Plan including roles/responsibilities, IT needs, alternative site, notification mechanisms, and dissemination/testing activities.
  - FGDB planning to revamp IT systems backup infrastructure and implement a backup site outside Bucharest.
  - MoPF operates a phone tree for general functions but lacks a formal business continuity plan geared to crisis management.
- Areas for further strengthening: activate NCMO Technical Commission on Crisis Management; conduct comprehensive nationwide tests under the new framework.

### Legal protection, governance, and procurement implications
- Personal legal protection:
  - Crisis management legal framework provides for personal legal protection for NBR and FGDB officers enforcing bank resolution mandates under certain conditions; excludes gross negligence or serious misconduct.
  - Protected roles include temporary administrators, management of bridge institutions, external experts, and management of asset management vehicles.
  - MoPF officials are not legally protected when executing responsibilities as ultimate lender of last resort — described as suboptimal.
  - Recommendations: broaden protection to include MoPF officers linked to bank resolution, include former officials, provide indemnification of legal costs, and specify operational arrangements (modalities and timing of payments).
- Public procurement law implications:
  - Bank recovery and resolution actions are subject to public procurement requirements, potentially causing lengthy tendering procedures and asset value depreciation, limiting effectiveness of P&A and partial transfers and constraining available resolution tools.
  - NBR mitigation: retention schemes and two-year framework agreements for resolution valuation services with three consultancy/audit firms; retention schemes effective but do not solve procurement constraints for asset disposals or sales.
  - Preferred solution: seek a well-delimited exemption of resolution actions from procurement law requirements.

### Tax implications in resolution
- Bank Recovery and Resolution Law explicitly addresses tax liabilities associated with transfers of assets and liabilities (P&A or bridge banks) by empowering NBR to mandate portfolio transfers free of tax liabilities and other fiscal burdens (Article 385 (1) of Law 312/2015).
- Resolution plans incorporate tax impacts case-by-case, including deferred tax assets.

### Selected main recommendations (responsible authority and priority)
- Prepare and conduct a simulation exercise that includes all members of the NCMO plus the FGDB. Responsible: All. Priority: ST.
- Seek a well-delimited exemption from the scope of the procurement law for bank resolution. Responsible: NBR, MoPF. Priority: MT.
- Prepare a business continuity plan covering emergency arrangements for crises. Responsible: MoPF. Priority: MT.
- Include MoPF officers linked to bank resolution under personal legal protection provisions. Responsible: MoPF. Priority: MT.
- Ensure Romania’s interests are addressed in recovery and resolution plans of Romanian subsidiaries of foreign banks. Responsible: NBR. Priority: NT.
- Diversify the investment policy of the FGDB. Responsible: FGDB/NBR. Priority: ST.
- Formalize contingent documentation between the FGDB and the MoPF to allow financing support. Responsible: MoPF/FGDB. Priority: ST.
- Establish operational procedures for FGDB accounts at NBR and formalize a repo line with the NBR. Responsible: FGDB/NBR. Priority: ST.
- Finalize and implement an ELA scheme and increase the types of assets accepted as collateral by the NBR. Responsible: NBR. Priority: ST.
- Prepare contingent plans for FX liquidity needs. Responsible: NBR. Priority: ST.
- Amend Law No. 85/2014 to increase NBR role in liquidation procedures. Responsible: NBR. Priority: MT.

*Source: IMF technical note “EXECUTIVE SUMMARY” (cr18165).*

### EXECUTIVE SUMMARY __________________________________________________________________________ 4

### EXECUTIVE SUMMARY

### Background and scope
- Technical note basis: mission from October 31, 2017 to November 14, 2017 in Bucharest; provides stocktaking since 2010 FSAP and recommendations to enhance crisis preparedness and financial safety net. (Paragraph 1)
- Coverage: crisis management and safety net supporting the banking system. Banking system accounts for 80 percent of total financial system assets; foreign-owned entities own 91 percent of banks’ assets. As of June 2017, there are 35 banking institutions, of which 14 are subsidiaries of groups under the remit of the Single Resolution Board (SRB), and seven are foreign banks’ branches. (Paragraphs 4–5)
- Framework assessed against international standards (Key Attributes, IADI principles) and IMF experience; not a formal compliance assessment. (Paragraph 5)

### Main developments since the last FSAP
- Implementation of the Bank Recovery and Resolution Directive (BRRD) via Law No. 312/2015 (published December 11, 2015) came into force January 1, 2016, materially revamping Romania’s bank resolution and crisis management toolkit. (Paragraphs 6–7)
- NBR expanded powers as resolution authority: (i) take control of an institution (intervention); (ii) transfer shares/ownership instruments, rights, assets, or liabilities (purchase and assumption); (iii) cancel debt instruments; (iv) write down/convert eligible liabilities into common shares or other instruments of ownership (bail-in). In exceptional circumstances, public equity support and temporary public ownership may be applied. To date, none of the new tools have been exercised. (Executive Summary)
- NBR responsibilities expanded to enforce and analyze recovery planning requirements and prepare resolution plans; Supervision and Resolution Departments established criteria for handling failing banks. (Executive Summary; Paragraph 7)
- FGDB (Bank Deposit Guarantee Fund) responsibilities expanded beyond paybox: administrator of the bank resolution fund (created 2015), temporary administrator, special administrator of a credit institution under resolution, shareholder of a bridge institution, and shareholder of an asset management vehicle. Resolution fund on track to reach funding target by end–2024. (Executive Summary)

### Strengths and coordination
- NBR enhanced internal resolution and supervision organization, coordination across crisis management functions, and relevant powers.
- Inter-institutional coordination increased through information sharing agreements and participation in supervisory and resolution colleges for Romanian subsidiaries of foreign banks.
- Establishment of the National Committee for Macroprudential Oversight (NCMO) in 2017 was an important step; members appointed but NCMO not yet fully operational—Technical Commission on Financial Crisis Management should be activated. (Executive Summary)

### Remaining legal and operational gaps (priorities)
- Public procurement law applies to bank resolution actions and could seriously hinder swift action and constrain resolution options; authorities are implementing readiness actions but a comprehensive exemption from procurement law for bank resolution would be preferred. (Executive Summary; Table 1)
- Legal protection for NBR officers exists for key decisions, but protection does not include staff from the Ministry of Public Finance (MoPF); this gap should be addressed. (Executive Summary; Table 1)
- Formal legal instrument for MoPF support (contingent funding to FGDB if resources exhausted) has not yet been executed. (Executive Summary)
- NCMO not fully operational; Technical Commission should be activated to enhance crisis preparedness. (Executive Summary)

### Cross-border considerations and capital market implications
- Large presence of subsidiaries of major international banks under SRB authority requires intense cross-border coordination and a domestic capital market strategy to ensure Romanian interests are represented in resolution colleges and recovery planning. (Executive Summary)
- Resolution colleges primarily adopt a single point of entry approach for foreign parent groups; incorporating multiple point of entry strategies requires a medium-term plan to develop loss-absorbing eligible instruments in the domestic capital market. If multiple point of entry were adopted, resolution planning must ensure separability and autonomy of Romanian subsidiaries from their parent financially and operationally. (Executive Summary)

### Deposit insurance and FGDB operations
- FGDB funding concentration: three quarters of FGDB funds invested in domestic T-bills and the remainder deposited in the banking system it insures. (Executive Summary)
- Recommendations for FGDB:
  - Diversify investment policy while preserving liquidity and security; migrate gradually towards first-rate paper from domestic and international issuers. (Executive Summary; Table 1)
  - Obtain operational accounts at the central bank to reduce deposits in the banking system to minimum operational levels and increase flexibility/liquidity. (Executive Summary; Table 1)
  - Be provided access to the NBR’s repo facility to obtain liquidity against treasury bills and other assets during reduced market liquidity. (Executive Summary; Table 1)
  - Eliminate constraint that FGDB’s operational expenses be covered only from the yield of the Fund. (Table 1)

### Emergency Liquidity Assistance (ELA)
- NBR has liquidity provision framework based on traditional instruments and windows, but an operational ELA scheme is lacking; ELA arrangements provided in law not fully implemented and limited practical ELA experience exists. ELA is critical both prior to resolution and for entities under resolution (e.g., bridge bank or bailed-in institution). (Executive Summary)
- An operational ELA framework under development should be concluded, aligned with the ECB 2017 agreement, including establishing conditions, operational elements (charges, maximum terms), and broadening eligible collateral to a more diverse asset pool. (Executive Summary; Table 1)
- FX liquidity considerations: 41 percent of banks’ liabilities are in foreign currency (including a sizable share of retail deposits); ELA framework must incorporate contingent plans for illiquidity in FX and increase types of assets accepted as collateral by the NBR. (Executive Summary; Table 1 and footnote)
- Current practical collateral constraints: Regulation No. 3/2016 limits acceptable collateral mainly to government securities and cash from reserve requirements, severely limiting ELA options. (Footnote)

### Liquidation regime
- Recommendation to amend Law No. 85/2014 to increase intrusiveness of NBR’s role during liquidation procedures. (Table 1)

### Main recommendations (selected, with responsible authority and priority)
- Prepare and conduct a simulation exercise that includes all members of the NCMO plus the FGDB. Responsible: All. Priority: ST (Short Term). (Table 1)
- Seek a well-delimited exemption from the scope of the procurement law for bank resolution. Responsible: NBR, MoPF. Priority: MT (Medium Term). (Table 1)
- Prepare a business continuity plan covering emergency arrangements for crises. Responsible: MoPF. Priority: MT. (Table 1)
- Include MoPF officers linked to bank resolution under personal legal protection provisions. Responsible: MoPF. Priority: MT. (Table 1)
- Ensure Romania’s interests are addressed in recovery and resolution plans of Romanian subsidiaries of foreign banks. Responsible: NBR. Priority: NT (Note: in table "NT" used; context indicates near/medium term). (Table 1)
- Diversify the investment policy of the FGDB. Responsible: FGDB/NBR. Priority: ST. (Table 1)
- Formalize contingent documentation between the FGDB and the MoPF to allow financing support. Responsible: MoPF/FGDB. Priority: ST. (Table 1)
- Establish operational procedures for FGDB accounts at NBR and formalize a repo line with the NBR. Responsible: FGDB/NBR. Priority: ST. (Table 1)
- Finalize and implement an ELA scheme and increase the types of assets accepted as collateral by the NBR. Responsible: NBR. Priority: ST. (Table 1)
- Prepare contingent plans for FX liquidity needs. Responsible: NBR. Priority: ST. (Table 1)
- Amend Law No. 85/2014 to increase NBR role in liquidation procedures. Responsible: NBR. Priority: MT. (Table 1)

*Source: IMF technical note “EXECUTIVE SUMMARY” (cr18165).*

### Box 1. Implementation of the 2010 FSAP Key Recommendations in the Area of Crisis

### Box 1. Implementation of the 2010 FSAP Key Recommendations in the Area of Crisis Management (concluded)

### Implementation status of 2010 FSAP crisis recommendations
- Consider additional measures to provide liquidity, especially under ELA. Not implemented yet. Arrangements remain limited by the types of collateral accepted. The NBR is working on the implementation of the ECB’s standards for ELA.
- Review bank resolution framework to facilitate rapid action and options for bank restructuring. Also implemented through the transposition of the BRRD.
- Strengthen deposit insurance funding arrangements and speed up payouts. The FGDB has reached its target for the deposit insurance fund. The institution’s workplan includes increasingly complex tests to enhance its ability to provide fast payouts. Contingent funding arrangements with the MoF are still pending implementation.

### BRRD implementation and enhanced NBR powers
- Under the revised framework the NBR and FGDB were granted important new powers. As resolution authority, the NBR received the power to:
  - take control of an institution (intervention);
  - transfer the shares or any other instruments of ownership, rights, and assets or liabilities (purchase and assumption);
  - cancel debt instruments; and
  - write down/convert into common shares or other instruments of ownership the eligible liabilities of an institution under resolution (bail-in).
- Bail-in powers can be exercised either independently or in combination with other resolution actions.
- Under exceptional circumstances, after all other resolution tools have been assessed and used to their maximum and market confidence and stability remain at stake, government financial tools may be applied (public equity support and temporary public ownership).
- NBR new responsibilities include enforcement and analysis of recovery planning requirements and preparation of resolution plans.
- New mechanisms of coordination were created, including the National Committee for Macroprudential Oversight (NCMO), which foresees to include a Technical Commission on Crisis Management.

### Key elements of the BRRD (Directive 2014/59/EU)
- Focused on: (i) preparedness by both banks and authorities; (ii) better tools for early intervention; (iii) harmonized resolution tools and powers; (iv) effective cross-border cooperation; and (v) the contribution by banks to resolution financing arrangements to support the costs of restructuring.
- Resolution tools introduced to minimize costs borne by the state and taxpayers include:
  - Effect private sector acquisitions (purchase and assumption, P&A) by selling or merging the business with another bank;
  - Transfer business to a temporary structure (bridge bank) to operate essential banking functions and/or facilitate continuous access to deposits;
  - Separate good assets from bad ones, allowing partial transfer of assets and liabilities;
  - Convert to shares or write down the debt of failing banks to restore capital position (bail–in).
- Tools intended to preserve critical functions without the need to bail out the failing bank and to protect depositors while shareholders and creditors bear appropriate losses.

*Source: European Commission.*

### Recovery and resolution planning
- First round of plans initiated in 2016: all banks required to prepare recovery plans (individual or group level for cross-border cases). These were assessed by the NBR for domestic entities or consolidating supervisors for foreign banks and discussed in supervisory colleges.
- Supervision Department role: identify factors affecting viability of recovery measures; found material room for improvement in the first cycle, especially lack of specific actions for activities of some foreign subsidiaries in Romania. Observations were raised at supervisory college level and banks required to address them in a second cycle now in progress.
- Resolution Department role: assesses resolvability issues and prepares resolution plans.
- Resolution planning coverage (Resolution Department cycles started 2016):
  - currently cover 16 out of 22 subsidiaries of cross–border groups subject to consolidated supervision and nine domestic banks (under NBR remit), of which two domestic banks qualify as systemic (NBR order No. 12/2017).
  - 16 out of 22 subsidiaries represent 97 percent of the cross-border groups’ subsidiaries’ net assets as of June 2017.
- Plans examine resolution strategies, key actions in failure scenarios, tools to be used, ways to preserve critical functions, and communication plans.
- For holding companies Law allows adoption of Single Point of Entry (SPE) or Multiple Point of Entry (MPE). Most resolution plans for foreign subsidiaries concluded SPE was the most appropriate strategy due to limitations in issuance of loss-absorbing instruments in Romania (shallowness of local bond market) and lack of separability and autonomy of subsidiaries.
- Remaining challenges: viability of plans (to be tested via simulation exercises) and potential strategic behavior of cross-border institutions.

### Simplified requirements and legal alignment
- Pursuant to Article. 4 of the BRRD, Romania added rules and simplified certain requirements. Law 312/2015 allows the NBR to apply simplified requirements regarding resolution planning.
- Four credit institutions subject to simplified obligations in the 2017 resolution planning process. Simplified obligations consist of:
  - a simplified structure of the resolution plans;
  - lower frequency for updating the plans; and
  - less detailed updates.
- Law stipulates minimum conditions for bridge banks capital, shareholding, and operational requirements.
- Simplification consistent with EBA guidelines (EBA/GL/2015/16).

### Simulation exercises and business continuity plans
- Simulation exercises and testing support legal reforms and practical implementation. The 2013 simulation exercise identified areas of attention for regular activities and contingent purposes.
- NBR developing detailed internal operational procedures for bank resolution to enable effective and expedited decision making; procedures include step-by-step actions and exchanges between relevant departments and external stakeholders (MoPF and FGDB) for each resolution tool.
- A simulation exercise planned for 2018 will test resolution procedures within the NBR, which by then would be adopted officially. Joint simulation exercises with the MoPF and FGDB are planned as next steps.
- FGDB simulation program in accordance with EBA guidelines:
  - First exercise in 2017 tested information stream procedures for a single deposit-taking institution.
  - 2018 test planned to simulate pay-out to depositors following failure of a medium-sized bank.
  - 2019 exercise planned to assume that funds in the deposit guarantee fund are insufficient; external stakeholders, notably the NBR, will participate as observer.
- No nationwide crisis management exercises under the new framework have taken place. The NCMO’s Technical Commission on Crisis Management has not been activated. Given institutional changes and legal reforms, a new comprehensive test is warranted.
- Business continuity planning needs further entrenchment at institutions and within the financial safety net:
  - NBR has a Business Continuity Plan including roles/responsibilities, IT needs, alternative site, notification mechanisms, and dissemination/testing activities.
  - FGDB planning to revamp IT systems backup infrastructure and has worked on enhanced preparedness, including implementation of a backup site outside Bucharest.
  - MoPF operates a well-established phone tree for general functions but it is not geared toward crisis management in the context of a formal business continuity plan.

### Tax implications in resolution
- Bank Recovery and Resolution Law explicitly addresses tax liabilities associated with bank restructuring in resolution context. Transfers of assets and liabilities associated with P&A or bridge banks could be delayed or made nonviable if affected by taxes and other encumbrances that apply to regular market transactions.
- Law empowers the NBR to mandate such portfolio transfers free of tax liabilities and other fiscal burdens (Article 385 (1) of Law 312/2015).
- Resolution plans incorporate tax impacts on a case-by-case basis, including notably deferred tax assets if present in the balance sheet.

### Deposit insurance (FGDB)
- FGDB established in 1996; latest depositor payout was 10 years ago, allowing accumulation in the deposit insurance fund currently equivalent to 3.4 percent of eligible deposits, covering 99.5 percent of accounts.
- High coverage level also reflects insurance threshold of EUR 100,000.
- December 2015: FGDB implemented new legislation (Law 311/2015) transposing EU Directive 2014/49 on deposit guarantee schemes.
- FGDB role expanded since 2011 to participate in resolution measures dictated by the NBR; 2015 framework empowered FGDB as administrator of newly created bank resolution fund.
- FGDB mandated roles include:
  - temporary administrator;
  - special administrator of a credit institution under resolution;
  - shareholder of a bridge institution; or
  - shareholder of an asset management vehicle.
- FGDB preparedness activities:
  - building a roster of professionals to act as administrators or Board members on demand;
  - executing and planning simulation tests of procedures and systems;
  - cross-border coordination with other deposit insurers in jurisdictions with banks exposed to Romania through branches or subsidiaries.

### Liquidity assistance (ELA) and limitations
- NBR maintained liquidity provision framework for monetary policy, but toolkit lacks a well-developed ELA scheme.
- Very limited experience with providing ELA; ELA arrangements provided by law have not been fully implemented. In recent years, NBR provided ELA only once for three months in 2009.
- Regulation No. 3/2016 establishes a list of eligible collateral for liquidity operations where domestic sovereign risk paper predominates.
- In practice main collateral acceptable is limited to domestic government securities and cash (from reserve requirements), severely limiting ELA options, with none of the other necessary principles (maximum terms, charges, etc.) stipulated formally.
- A formal operational framework for ELA is under construction; authorities are looking to the legal framework of the ECB 2017 agreement in this area as the base for its formulation.

### Liquidation regime
- Romanian laws differentiate between liquidation scheme for banks and for nonfinancial corporates. New resolution framework updates Corporate Insolvency Law for bank liquidation.
- If resolution protocols for non-systemic banks fail to find viable alternative of lower cost than liquidation, NBR activates liquidation procedure administered by the judicial system.
- FGDB no longer acts as judicial liquidator. Once NBR Board decrees bank liquidation, FGDB has seven business days to reimburse holders of insured deposit accounts, then a syndicated judge takes responsibility for liquidating remaining assets and liabilities.
- Syndicated judge may request NBR opinion (advisory and optional). Limited judicial experience in this area and detachment of NBR in liquidation cases could lead to protracted processes and loss of value.
- Liquidation Creditors Committee will include the FGDB to protect its interest in recovering funds mobilized in the process.
- Law allows liquidation processes to be carried out as P&A schemes to maximize recovery, but implementing that option would require NBR expertise.

### Areas for further strengthening
- Institutional arrangements for bank resolution and crisis preparedness need further development (including activation and use of the NCMO Technical Commission on Crisis Management and comprehensive nationwide tests).
- ELA framework needs formal operationalization, broadening acceptable collateral and stipulating principles (maximum terms, charges).
- Continued development of recovery and resolution planning, simulation testing, business continuity planning, and cross-border coordination are required to ensure viability and resolvability of banks under stress.

*Source: International Monetary Fund.*

### 23. The crisis management framework in Romania has materially strengthened since the

### 23. The crisis management framework in Romania has materially strengthened since the previous FSAP, but more coordination is needed

### Coordination and institutional arrangements
- The NCMO and its Technical Commission on Crisis Management are new mechanisms intended to further coordinate crisis preparedness; the framework "is as strong as the weakest component."
- Participating institutions would benefit from executing contingent arrangements that make the tools mandated by the law viable in a swift way.
- The MoPF is currently finalizing the Memorandum of Understanding (MoU) to formalize key interactions with the FGDB in the context of the new Bank Recovery and Resolution framework, covering resources, data, and "critical and opportune information."
- Access by the FGDB to NBR repo facilities and deposit accounts would increase efficiency.
- A well-designed global simulation exercise would help identify other bottlenecks.

### Public procurement law and implications for resolution
- The bank recovery and resolution law and its provisions and tools are subject to the requirements of the public-sector procurement law, which entails risks:
  - Hiring independent assessors and external resolution experts, and disposing/selling assets and liabilities, must adhere to regular procurement requirements, even in a crisis scenario.
  - Such requirements would generally lead to lengthy tendering procedures and likely higher costs due to asset value depreciation and risks of further market instability.
  - This feature limits de facto the effectiveness of P&A procedures and partial transfers of assets and liabilities, reducing the available resolution toolkit in practice to the establishment of a bridge bank (assuming bad assets can be disposed gradually) and bail-in.
  - Liquidation procedures would also be affected, with impact mostly on recovery value of assets rather than increased spillovers or instability.
- The NBR Resolution Department is organizing a scheme of contracting qualified professionals ahead of time (retention scheme) to mitigate risk of delayed resolution action due to procurement rules; two-year framework agreements on resolution valuation services with three consultancy/audit firms have been concluded.
  - Such retention schemes are effective for swift specialized services contracting and require periodic updates.
  - Retention schemes do not solve scenarios where disposal of assets or sale of the failing institution are subject to public procurement requirements.
  - A more comprehensive solution could seek a well-delimited exemption of resolution actions from procurement law requirements.

### Local market features constraining resolution tools
- Romanian system is mainly deposit-based and the domestic capital market nascent:
  - Financial instruments that could become part of a bail-in operation are not available at this point; constraints limit the efficacy of bail-in.
  - For P&A or bridge-bank resolutions these features lead to a wider balance sheet gap to be closed.
  - In a bridge-bank scenario, limited domestic market size and small number of players may lead to longer periods sustaining the bridge institution compared with advanced markets.
- Authorities must consider these constraints in resolution and recovery planning.

### Recovery and resolution planning
- Romania completed the first round of recovery and resolution planning and is finalizing the second round, incorporating requirements, comments, and lessons learned.
- Recovery plans require further work where subsidiaries of major international banks under SRB authority exist:
  - Further work is needed to address specific Romanian concerns in parent banks’ planning.
  - Scrutinizing parent bank commitments is a major challenge to be tackled in supervisory colleges.
- The NBR should continue increasing specificity, clarity, completeness and internal consistency of recovery and resolution measures.
- For foreign subsidiaries:
  - Current resolution planning is mainly single point of entry; if a multiple point of entry strategy were adopted, planning must ensure separability and autonomy from group/parent from financial and operational viewpoints so Romanian subsidiaries can operate as going concerns.
  - A multiple point of entry model would require a strategy for development of loss-absorbing eligible instruments in the domestic capital market.
- Resolution plans should evolve to reinforce bank supervision design and focus:
  - Apply a risk-based approach to plan assessment depending on institution complexity and importance.
  - Develop a resolvability assessment methodology adapted to Romania to spread knowledge and ensure analytical consistency.

### Personal legal protection and governance
- The crisis management legal framework provides for personal legal protection for NBR and FGDB officers enforcing bank resolution mandates under certain conditions; Romanian transposed law stipulates broad coverage for specific NBR and FGDB tasks during resolution, excluding gross negligence or serious misconduct that directly affects shareholders’ or creditors’ rights.
- Protected roles include: temporary administrators of intervened banks, management bodies or senior management of bridge institutions, external experts hired ad-hoc for resolution tasks, and management bodies or senior management of asset management vehicles.
- MoPF officials are not legally protected when executing their responsibilities as ultimate lender of last resort — described as suboptimal.
- Recommendations on legal protection:
  - Supplement provisions to incorporate institution officers currently not covered, include former officials, and provide indemnification of legal costs.
  - Specify operational arrangements, including modalities and timing of payments.
  - A strong personal protection scheme aids effective execution of the law and supports agencies in litigation scenarios.

### Deposit Insurance Policies and Operations — current status and recommendations
- Governance and resources:
  - FGDB governance is tightly linked to the NBR: Supervisory Board has five NBR representatives and two from MoPF; all Supervisory Board members must be approved by the NBR Board; mandates are three years.
  - Executive Committee (three directors) implements annual investment strategy approved by NBR’s Board.
  - As of June 2017 total funds administered by the FGDB amounted to US$1.6 billion, of which US$1.4 billion corresponded to the deposit guarantee fund and the rest belonged to the resolution fund.
  - The deposit insurance fund is "on target" and the institution moved to risk-based bank contributions.
  - Improved planning should enable a multiyear system of announced contribution levels to help banks’ planning.
- Investment policy and diversification:
  - Currently 73 percent of the Fund’s resources is concentrated in Romanian sovereign securities; the rest is deposited domestically in banks covered by the Fund.
  - High correlation of risks exists between the Fund, the fiscal cycle, the banking system’s risks, and the Romanian economy.
  - IADI principles and international good practice prescribe minimizing direct exposure to insured banks and diversifying investments, including investing in first-rate paper internationally; priority must be liquidity and security over yield.
  - Diversification can be gradual over a prudent period of several years and could start with the current year’s contributions flow.
  - Diversification requires additional risk-management capacities (e.g., currency hedging), but gains in volatility reduction would compensate costs, especially on a mark-to-market basis.
  - Recommendation is feasible under current laws and regulations.
- Access to central bank accounts and repo facility:
  - FGDB currently does not have accounts at the central bank, contributing to exposure to commercial banks; this should be corrected for risk management and operational reasons.
  - Being formally designated as paying agent in liquidations by virtue of international agreements with deposit insurers of foreign banks would make it safer for resources to flow via the central bank.
  - FGDB requires a contingent short-term repo facility with the NBR, fully collateralized, to make government paper liquid and avoid losses from fire sales to discharge deposit repayment obligations.
- Contingent treasury funding:
  - In extreme event where deposit insurance fund insufficient, contingent agreement should establish levels of authority (with alternate signatories), execution by tranches, type of security to be issued, and mechanisms to transfer funds operationally to FGDB.
  - Good practice: such support should take form of a credit to be repaid from future bank contributions.
  - Law specifies initial funding comes from privatization proceeds fund, which currently amounts to €600 million; the law also mentions treasury can issue paper within five days for depositor repayment purposes.
  - All provisions should be laid out in a master agreement to enable quick execution.
- Resolution fund and its management:
  - The resolution fund inherited resources from a predecessor fund and is formally separated with own bookkeeping; NBR decides use of resolution fund resources for resolution tool application as set out in Law 312/2015.
  - The resolution fund amounts to US$248 million (as of June 2017), which is about 60 percent of its target (1 percent of insured deposits).
- Investment policy differentiation and operational flexibility:
  - Currently both deposit insurance and resolution funds share the same investment policy; they could be set apart:
    - Resolution fund typically not required to inject cash as frequently as deposit insurer; liquidity criteria could be relatively lower and return considerations relatively higher for the resolution fund.
    - Resolution fund could keep assets in FX at least in same proportion as average loan dollarization ratio to minimize currency mismatches when contributing to resolution cases.
    - Implement resolution fund fine-tuning in tandem with deposit fund diversification.
    - Establishing a mechanism to allow asset swaps between funds would be efficient in resolution cases to mitigate currency or term mismatches; having NBR accounts would facilitate swaps.
- Operational expenses funding constraint:
  - FGDB is legally bound to cover operational expenses only from fund’s yield, which is not aligned with international practices and is an unnecessary limitation.
  - Recommendation: lift the restriction or complement it with alternative means (e.g., extraordinary contributions); extraordinary scenarios may require covering expenses from regular contributions (which could be capped).
  - Risk mitigation: annual FGDB budget is approved by NBR Board and can be limited by caps or time-limits.

### Emergency Liquidity Assistance (ELA) — gaps and priorities
- ELA is "the least developed area" of the crisis management framework; NBR must prioritize implementing ELA arrangements based on the ECB agreement framework.
- Priority actions:
  - Widen range of eligible collateral for ELA and other liquidity windows; current regulation limits collateral to government and central bank paper or cash (regulation also mentions securities issued by international organizations and mortgage bonds, though these securities do not have presence in local market).
  - Expand acceptable collateral to include other sovereign issuers and less liquid assets under pre-established criteria (haircut levels, minimum risk ratings, short term vs. long term, etc.).
  - Test features of a new ELA framework against realistic asset structures and access for domestic banks; ensure consistency with state-aid rules.
- FX illiquidity preparedness:
  - Given euroization of system balance sheets, NBR must elaborate a plan for bank illiquidity in FX.
  - Establish internal objective parameters (e.g., adequacy of the Net International Reserves level) under which NBR would open a liquidity window in FX with its own limits and conditions for costs, collateral, etc.
  - To minimize moral hazard, a window could be offered only under specific circumstances.
  - Romanian authorities had a nonformalized agreement with the ECB for funding in euros during recent crisis that was never activated; exploring conditions for a more formal facility would be beneficial, particularly for ELA considerations.

*International Monetary Fund*

### 40. The NBR should aim at maintaining a greater role during liquidation processes. Under

### 40. The NBR should aim at maintaining a greater role during liquidation processes. Under

### Recommendation
- Amend the law to give the NBR a greater say in liquidation processes.
- Make consultations between syndicated judges and the NBR mandatory and make the implementation of such consultations a responsibility of the syndicated judge.

### Rationale and risks
- Under conditions of low financial expertise in the judiciary, an only optional consultation of syndicated judges with the NBR, as stipulated in the current law, may lead to:
  - significant losses, and
  - unnecessarily protracted liquidation processes.
- Greater NBR involvement would be particularly important in scenarios in which the banks’ assets and liabilities could be assumed by other institutions after the liquidation phase started.

### Legal reference
- Current law cited: Law 85/2014, Article 212(1).

### Supporting institutional context (selected excerpts)
- Since the last FSAP in 2009/10, the NBR implemented several rounds of measures to enhance its crisis management tools, including formation and reorganization of crisis management units culminating in the Bank Resolution Department with two divisions: the Resolution Strategies and Policies Coordination Division and the Resolution Decisions Preparation and Implementation Division.
- In 2012, the Romanian financial supervisory authorities signed an MoU for the mutual exchange of information; the MoU was amended to include the Bank Deposit Guarantee Fund, and the NBR and the FGDB entered into a cooperation agreement that later supported cooperation in the bank resolution field.
- Cross-border supervisory presence of the NBR improved through participation in Supervisory Colleges and signature of an MoU among EU financial authorities to improve cross-border coordination.
- The NBR issued Regulation No. 17/2012 to set stricter requirements related to lending to individuals and nonfinancial entities, including on the assessment of reimbursement capacity, debt-to-income analysis, and foreign currency lending.
- Offsite supervision was strengthened through enhanced reporting, particularly on asset quality and liquidity, including granular reports of restructured loans, insolvency, NPLs, outsourced loans, interbank funding, customer deposits, quick liquidity, and investment portfolio.
- Interaction between financial safety net participants and the local Competition Council was developed, leading to a formal agreement clarifying the Competition Council's role in bank resolution and the interaction of the BRRD with state aid principles.

### Related simulation exercise findings (2013)
- Objectives of the 2013 simulation included examining responses to sudden financial distress, identifying tasks and decisions at systemic level, assessing inter-authority cooperation in home-host settings, and enhancing preparedness.
- Main findings included:
  - The limited exchange of analytical interpretation of data across institutions; communications tended to be formal.
  - A need for swifter and streamlined decision making on ELA.
  - The possibility of putting an insolvent bank under administration, and the role of the NBR’s Supervision Department in that stage.
  - Alternative strategies for foreign subsidiaries that are not supported by their parent banks.
  - The supervision and regulatory consistency between the banking sector and capital market.
  - Cyber security considerations both for banks and the players.
  - A communication strategy.

*Source: IMF staff report (cr18165) — excerpts as provided.*

---


_Source: https://www.imf.org/-/media/files/publications/cr/2018/cr18165.pdf_