## Technical Note: Financial Safety Net Arrangements in Georgia (FSAP mission, January 28–February 16, 2021) ## Source details **Canonical URL:** [Technical Note: Financial Safety Net Arrangements in Georgia (FSAP mission, January 28–February 16, 2021)](https://www.imf.org/-/media/files/publications/cr/2021/english/1geoea2021007.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1geoea2021007.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1geoea2021007.pdf.json) --- ### Introduction and scope - Assesses financial safety net arrangements in Georgia and summarizes findings of the FSAP mission undertaken virtually during January 28–February 16, 2021. - Scope includes: - legal, policy and procedural framework for bank failure resolution; - recovery and resolution planning regimes; - deposit insurance arrangements; - funding arrangements for banks that cannot be resolved via closure and liquidation; - contingency planning and crisis management arrangements. - Authorities covered: National Bank of Georgia (NBG), Ministry of Finance (MoF), Deposit Insurance Agency (DIA), Insurance State Supervision Service (ISSA). ### Financial sector landscape — key statistics and structure - Market concentration: - TBC Bank (TBC) and Bank of Georgia (BOG) held 74 percent of banking system assets, 76 percent of total deposits and 74 percent of insured deposits (as of end-November 2020). - Liberty Bank has 5 percent share of assets, 6 percent of deposits and 15 percent of insured deposits. - Two largest banks have a combined market share of 75 percent. - Banking group structure: - Both largest banks are subsidiaries of parent non-financial legal entities listed on the London Stock Exchange; both banks represent over 95 percent of overall group total assets. - Funding composition: - Total deposits represent 60 percent of total assets for the sector. - Insured deposits represent 7 percent of total assets and 11 percent of total deposits. - Senior and subordinated debt represents 25 percent of total assets (TBC at 27 percent and BOG at 23 percent). - The vast majority of TBC and BOG debt is issued in foreign jurisdictions. - Systemic designation: - Three banks designated as SIBs for supervisory purposes (TBC, BOG, Liberty Bank). No additional SIB designations since 2017; no internal guideline developed yet for determining potential systemic-in-failure status. ### Legal framework and recent reforms - Primary legislation: Law on Commercial Banking Activities (Banking Law), Organic Law on the National Bank of Georgia (NBG Law), Law on the Deposit Insurance System (DI Law). - 2019 amendments to the NBG Law and Banking Law: - Introduced a resolution regime for banks that may be systemic in failure, broadly following the Key Attributes. - Provided authorities with powers to resolve banks that previously might have been deemed too-big-to-fail. - Require all banks to prepare recovery plans specifying how they will overcome shocks to capital and liquidity. - 2017 DI Law: - Establishes Deposit Insurance System (DIS), Deposit Insurance Agency (DIA) and Deposit Insurance Fund (DIF). - 2020 NBG rules: - Policy and procedure documents on recovery plan development and assessment, critical functions identification, valuations, bail-in, issuance of new shares, bridge bank licensing and management, resolution planning, Special Manager activities. ### Institutional arrangements and governance - Interagency Financial Stability Committee (IFSC) established: MoF, NBG, DIA, ISSA; Charter adopted; role in normal and crisis circumstances envisaged. - NBG internal changes: - New Resolution Committee (RC): Governor and all Deputy Governors; RC held initial meeting in December 2020 and likely to meet next in June 2021. - New Resolution and Liquidation Division (RLD): division head and 3 staff; RLD to recruit two additional staff during 2021; reports temporarily to Vice-Governor responsible for bank supervision; operational separation within two years anticipated. - Special Manager (SM) regime introduced to undertake resolution action at direction of the NBG in lieu of direct NBG staff action. - MOUs and legal protections: - NBG has MOUs with foreign supervisory authorities but none specific to resolution purposes; RLD should review MOU inventory. - NBG Law provides immunity for current and former NBG staff for actions taken in good faith; protections extend to TeAs, SMs, Liquidators and bridge bank administrators; comparable protections exist for DIA staff. - Recommendation: further specify IFSC roles and responsibilities in normal and crisis times. ### Recovery planning and early intervention - Recovery plans: - NBG guidance issued June 2020; three SIBs submitted first plans; all other banks to submit plans by July 1, 2021. - All banks required to submit comprehensive recovery plans by May 31, 2022. - Transitional deadlines: - SIBs: one stress scenario by January 1, 2021 and additional stress scenarios by July 1, 2021 (first submissions delayed due to pandemic but received in Q1 2021). - Other banks: one stress scenario by June 30, 2021 and additional stress scenario by December 31, 2021. - NBG to provide written feedback within three months; banks to revise plans within two months. - Critical Functions: - Banks must prepare self-assessment of critical functions; NBG issued a Critical Functions Rule; banks must update self-assessments annually. - Early intervention: - NBG has extensive early intervention powers and can require implementation of recovery-plan measures. - Gap: NBG has not adopted a formal written policy guiding use of early intervention powers. - Recommendation: adopt a formal prompt corrective action policy framework to intervene prior to balance sheet insolvency. - Recommendation: Amend the Recovery Plan Rule to ensure triggers for escalation are set sufficiently above regulatory minimums. ### Failure resolution powers, funding tools and planning - Resolution tools enabled (post-2019 amendments): - license revocation and liquidation with insured deposit payout; - bail-in (write-down/convert liabilities); - issuance of new shares; - bridge bank (established by MoF); - sale of business (transfer of shares/assets/liabilities); - Special Manager appointment. - Resolution objectives: ensure continuity of critical functions, avoid significant adverse effect on financial system stability, protect budgetary and public funds, insured deposits, and client assets. - Valuations and NCWO: - Independent valuations required to support license revocation and resolution tool decisions; post-resolution independent valuation required for NCWO assessment. - Valuation rule issued; gap: expectations for information banks must provide not detailed. - Creditor hierarchy: - Updated in 2019 but recommended further update to align with deposit insurance changes (coverage increased July 1, 2020). - Current ordered items (after secured creditors, unsecured claims of Resolution Fund and NBG, then DIA subrogated or insured depositors): i) individuals up to GEL 10,000; ii) legal entities up to GEL 10,000; iii) individuals up to GEL 100,000; iv) individuals in local currency in excess of GEL 100,000; v) individuals in foreign currency in excess of GEL 100,000; vi) legal entities in local currency in excess of GEL 10,000; v) legal entities in foreign currency in excess of GEL 10,000; vi) loans disbursed by other banks to the liquidation estate; vii) tax liabilities; viii) other claims; thereafter non-deposit claims of owners, subordinated debt and tiers of regulatory capital. - Recommendation: adopt a simplified tiered creditor hierarchy consistent with deposit insurance coverage; reassign claims of a bank that lends to a liquidation estate to the same priority as NBG unsecured claims. - MREL and bail-in: - NBG has authority to set MREL but has not yet done so. - Bail-in Rule issued; gaps: existing debt issuances often governed by foreign law and lack contractual bail-in clauses. - Recommendations: require contractual clauses in new debt issuances recognizing NBG bail-in; commission legal analyses in relevant foreign jurisdictions; adopt policy on MREL setting and phase-in. - Resolution planning: - Initial resolution plans to be developed for the three SIBs by RLD by year-end 2021 and require RC approval. - RLD to develop process for assessing credibility and feasibility of liquidation for all banks; full coverage not envisioned until 2022. - Recommendation: RC to commission rapid stock-taking to determine whether non-SIBs should be prioritized for 2021 resolution planning. ### Deposit insurance, liquidity support and funding arrangements - DI Law (2017) established DIA and DIF; DIA governed by five-member Supervisory Board (Minister of Finance, NBG President, Minister of Economy and Sustainable Development, two independent members nominated by banks); Board chair rotates between the three ex officio members. - Payouts: - Deposit insurance triggered on Insurance Case (commencement of liquidation, insolvency or bankruptcy). - DI Law: deposit payouts commence within 20 days of an Insurance Case. - DIA implementing digital payout system to reach seven-day international standard; DIA testing with largest banks; DIA intends to enter into standby contracts with two agent banks (one under contract presently). - Depositors have up to three years to make a claim. - Deposits in local and foreign currency covered; payouts only in local currency using NBG exchange rate on Insurance Case date. - Coverage and resources: - Coverage increased from GEL 5,000 to GEL 15,000 on July 1, 2020. - Expansion to legal entities pending in Parliament (anticipated in Spring 2021 session). - With GEL 15,000 coverage: - fully covers deposits of 97 percent of resident and non-resident natural persons (increase from 95 percent prior to coverage change). - insured deposits represent around 11 percent of total deposits; with planned expansion to legal entities around 13 percent of total deposits will be insured. - DIF metrics: - DI Law target DIF balance: 6 percent of insured deposits. - At year-end 2020: DIF balance GEL 60.5 million, representing around 1.5 percent of insured deposits. - Projected year-end 2021: projected total insured deposits approximately GEL 4.56 billion, of which GEL 466 million will be deposits of legal entities; projected year-end 2021 DIF resources will approximate GEL 95.6 million, representing 2.1 percent of insured deposits. - DIA projects DIF will reach 6 percent target in 2026 assuming no Insurance Case and coverage unchanged. - Premiums: - Regular monthly risk-based premium caps: 0.067 percent of insured local currency deposits plus 0.1 percent of insured foreign currency deposits. - After coverage increase, premium on local currency deposits reduced to 0.03 percent; DIA concurrently increased the highest monthly premium for local currency deposits to 0.05 percent. - On average banks pay around 75 percent of the highest possible overall premium under the risk-based regime. - Extraordinary premiums: limited to 1 percent of insured deposits in a calendar year and payable within 5 days; if deficiency remains DIA must borrow. - Borrowing and back-up funding: - DI Law allows DIA to borrow from NBG and MoF but only when an Insurance Case causes DIF resources to be insufficient. - Recommendation: DIA should secure a backstop line of credit from the MoF and agree framework with NBG to borrow against its investment portfolio; amend DI Law to allow preemptive replenishment of DIF and to allow DIF target adjustment by DIA Supervisory Board. - Legal constraint: DIA cannot fund P&A transfers in liquidation; recommendation to amend legal regime to enable DIF-funded P&A if cost-effective. - NBG liquidity support and ELA: - NBG provides secured intraday, overnight, term loans and Emergency Liquidity Assistance (ELA). - 2019 NBG Law amendments allow ELA to a bank whose solvency is in doubt, including a bank in resolution, provided bank deemed viable under a realistic time-bound restructuring/restructuring or resolution plan and ELA secured by an unconditional irrevocable MoF guarantee plus collateral. - NBG published an ELA Rule; recommendation: amend ELA Rule to incorporate role of RLD and RC in initiating ELA for a bank pending or undergoing resolution. - MoF–NBG arrangements for execution of MoF guarantees for ELA not yet agreed; recommendation: conclude formal joint agreement addressing collateral expectations, relationship with Resolution Fund, and procedures for calling guarantees. - Temporary public funding and Resolution Fund: - MoF may provide temporary public funding directly or via the new ex post funded Resolution Fund; Joint Regulation channels direct funding to bridge bank capitalization by policy and channels other financing via the Fund. - Resolution Fund uses include loans to banks under resolution or bridge banks, guarantees, contributions to close differences in sale of business or bridge bank transfers, absorb losses not covered by bail-in, payment of NCWO claims, loans/guarantees to purchasers. - Resolution Fund is an NBG account funded by MoF, grants, borrowings or other sources; MoF may issue guarantees; any unrecovered Fund losses to be repaid to MoF by banking industry (including branches of foreign banks). - Parliamentary approval required for temporary public funding; expedited procedures provide two days for committee and five days for full Parliament—templates for documentation should be prepared in advance; MoF should consider explicit contingency fund in annual budget. ### Contingency planning and crisis management - Current status: - No formal agency-wide contingency plans or national contingency plan in place. - Priority to date was legal framework; need now for formal contingency plans within each authority and a national plan. - Needs and roles: - Individual authority plans should dovetail into a national-level plan under IFSC auspices. - Plans should be tested periodically with a multi-year testing program and enhanced based on outcomes. - IFSC should have clearer role in contingency planning and oversight of plan testing and crisis simulation exercises; Charter should be amended to clarify IFSC role in normal times and consultative role in crisis times. - Recommendation: assign IFSC responsibility for coordinating development of contingency plans across authorities and overseeing periodic crisis simulation exercises. - Governance actions: - Governing bodies of NBG, DIA, ISSA and MoF should mandate development of internal contingency plans and regular plan testing programs. - Recommendation: undertake regular national level crisis-simulation exercises. ### Operational readiness: liquidation, bridge bank, valuations, and staffing - Liquidation practice: - NBG can initiate liquidation with Banking Law provisions overriding general insolvency law; recent liquidations concluded relatively rapidly. - Liquidator appointment: typically NBG staff serve as Liquidators; recommendation to phase out practice and amend Liquidation Regulation to specify professional qualifications and presumption that NBG staff have conflict of interest and only serve in extraordinary circumstances. - RLD should identify qualified third-party Liquidators. - Bridge bank readiness: - MoF authorized to pre-establish a joint stock company to operate as bridge bank; MoF should set up such entity as soon as feasible, prepare Supervisory Board, capitalization arrangements, and templates for Cabinet and Parliament submissions. - Recommendation: MoF and NBG consider joint working group with deadlines agreed by Minister and NBG Governor. - Valuation preparedness: - RLD to place at least two firms under standby contracts capable of initiating valuation work within a week; solicit feedback from valuers on valuation rule and information requirements and enhance rules accordingly. - Staffing and resourcing: - Initial RLD staffing small (division head + 3 staff) with two additional recruits planned in 2021; recommendation to bolster RLD if resolution planning coverage expands beyond SIBs. ### Key operational and policy recommendations (selection) - Institutional framework - Further specify IFSC roles and responsibilities in normal and crisis times — MoF, NBG — Timing: I - Amend Special Manager Rule to define necessary skill set and ensure NBG staff only undertake that role in extraordinary circumstances — NBG — Timing: I - Recovery planning and early intervention - Amend Recovery Planning Rule to require triggers for management escalation set above minimum prudential requirements — NBG — Timing: I - Develop policy guidance to ensure timely action, including initiation of license revocation or alternative resolution action — NBG — Timing: I - Resolution powers and planning - Update creditor hierarchy by adopting a simplified tiered structure consistent with deposit insurance coverage — MoF, NBG — Timing: I - Adopt rule encouraging competitive bidding for sale of business tool — NBG — Timing: NT - Require contractual clauses in new debt issuances to recognize instruments are subject to bail-in by NBG — NBG — Timing: NT - Increase legal certainty for NBG bail-in decisions in foreign jurisdictions — NBG — Timing: NT - Undertake stock-taking to determine which non-SIBs should be prioritized for accelerated resolution planning — NBG — Timing: I - Set MREL for SIBs — NBG — Timing: NT - Establish, operationalize and fund a bridge bank — MoF, NBG — Timing: I - Analyze and minimize legal uncertainty about whether resolution decisions will be sustained in Court — NBG — Timing: I - Deposit insurance, liquidity support and temporary public funding - Secure back-stop DIF financing from the MoF — DIA, MoF — Timing: I - Amend DI Law to allow preemptive replenishment of DIF and allow DIF target adjustment by DIA Supervisory Board — MoF, NBG — Timing: NT - Agree arrangements for execution of MoF guarantee for NBG ELA — MoF, NBG — Timing: NT - DIA and NBG to enter framework agreement to enable liquification of DIF investment portfolio — DIA, NBG — Timing: I - Contingency planning and crisis management - Prepare crisis management contingency plans and adopt plan testing and improvement programs at agency and national level under IFSC auspices — All — Timing: NT - IFSC Charter to emphasize IFSC role in normal times overseeing contingency planning and plan testing programs — MoF, NBG — Timing: I *Source: Technical Note prepared for Georgia FSAP mission (virtual, January 28–February 16, 2021).* ### EXECUTIVE SUMMARY __________________________________________________________________________________ 4 ### EXECUTIVE SUMMARY ### Introduction and scope - This Technical Note assesses financial safety net arrangements in Georgia and summarizes findings of the FSAP mission undertaken virtually during the period January 28–February 16, 2021. - Scope includes: i) legal, policy and procedural framework for bank failure resolution; ii) recovery and resolution planning regimes; iii) deposit insurance arrangements; iv) funding arrangements for banks that cannot be resolved via closure and liquidation; and v) contingency planning and crisis management arrangements. - Authorities covered: National Bank of Georgia (NBG), Ministry of Finance (MoF), Deposit Insurance Agency (DIA), Insurance State Supervision Service (ISSA). ### Financial sector landscape — key statistics and structure - Market concentration: - TBC Bank (TBC) and Bank of Georgia (BOG) held 74 percent of banking system assets, 76 percent of total deposits and 74 percent of insured deposits (as of end-November 2020). - Liberty Bank has 5 percent share of assets, 6 percent of deposits and 15 percent of insured deposits. - Two largest banks have a combined market share of 75 percent. - Banking group structure: - Both largest banks are subsidiaries of parent non-financial legal entities listed on the London Stock Exchange; both banks represent over 95 percent of overall group total assets. - Funding composition: - Total deposits represent 60 percent of total assets for the sector. - Insured deposits represent 7 percent of total assets and 11 percent of total deposits. - Senior and subordinated debt represents 25 percent of total assets (TBC at 27 percent and BOG at 23 percent). - The vast majority of TBC and BOG debt is issued in foreign jurisdictions. - Systemic designation: - Three banks designated as SIBs for supervisory purposes (TBC, BOG, Liberty Bank). No additional SIB designations since 2017; no internal guideline developed yet for determining potential systemic-in-failure status. ### Legal framework and recent reforms - Primary legislation: Law on Commercial Banking Activities (Banking Law), Organic Law on the National Bank of Georgia (NBG Law), Law on the Deposit Insurance System (DI Law). - 2019 amendments to the NBG Law and Banking Law: - Introduced a resolution regime for banks that may be systemic in failure, broadly following the Key Attributes. - Provided authorities with powers to resolve banks that previously might have been deemed too-big-to-fail, greatly diminishing that eventuality. - Require all banks to prepare recovery plans specifying how they will overcome shocks to capital and liquidity. - 2017 DI Law: - Establishes Deposit Insurance System (DIS), Deposit Insurance Agency (DIA) and Deposit Insurance Fund (DIF). - 2020 NBG rules: - Series of policy and procedure documents specifying NBG policies for using new powers and supporting functions (recovery plan development and assessment, critical functions identification, valuations, bail-in, issuance of new shares, bridge bank licensing and management, resolution planning, Special Manager activities). ### Institutional arrangements and recent institutional developments - Interagency Financial Stability Committee (IFSC) established: MoF, NBG, DIA, ISSA; Charter adopted; role in normal and crisis circumstances envisaged. - Within NBG: - New Resolution Committee (Governor, two Vice-Governors, relevant department heads). - New Resolution and Liquidation Division established, responsible for resolution planning and organizing liquidation and resolution actions. - Division reports temporarily to Vice-Governor responsible for bank supervision; operational separation of resolution and supervision functions to be implemented within two years; anticipated appointment of an additional Vice-Governor. - New Special Manager regime introduced to undertake resolution action at direction of the NBG in lieu of direct NBG staff action. ### Recovery planning and early intervention - Recovery plans: - NBG guidance for plan preparation and complementary self-assessments of banks’ critical functions issued June 2020. - Three SIBs submitted first plans; all other banks to submit plans by July 1, 2021. - NBG Bank Supervision Department will lead plan reviews with input from specialist units including the Resolution and Liquidation Division. Written feedback to be provided within three months of receipt. - Early intervention: - NBG has extensive early intervention powers and can require banks to take actions defined in their recovery plans. - NBG has not yet adopted a formal written policy to guide use of early intervention powers. - Recommendation: adopt a formal prompt corrective action policy framework with the goal of intervening prior to balance sheet insolvency when a bank is likely to fail. ### Failure resolution powers, funding tools and planning - Resolution regime and tools: - Failing banks should in principle be resolved by license revocation and liquidation accompanied by transfer or payout of insured deposits. - 2019 amendments enable alternative resolution tools where liquidation would give rise to unacceptable financial system or economic consequences (including bail-in, issuance of new shares, bridge bank, sale of business, Special Manager). - Temporary public funding and Resolution Fund: - New ex post funded Resolution Fund established; banking industry ultimately financially responsible for reimbursing the Fund, insulating taxpayers. - NBG may provide liquidity support to a failing bank undergoing or about to undergo credible resolution action, supported by a full MoF guarantee. - MoF and NBG published Joint Regulations addressing functioning of Resolution Fund and reimbursement by the banking industry. Regulations articulate policy limiting direct MoF funding to bridge bank capitalization, with other financing channeled via the Fund. - Operational preparations: - NBG and MoF should lay groundwork to establish a bridge bank as soon as possible. - NBG should adopt policies encouraging competitive bidding for sale of assets and liabilities of a bank in resolution to sound banks. - Resolution planning for three SIBs to commence shortly; initial plans to be presented to the Resolution Committee by year-end 2021. - Recommendation: given pandemic stresses, Resolution Committee should commission rapid stock-taking to determine whether non-SIBs should be prioritized for resolution planning in 2021. - Bail-in and cross-border considerations: - Where creditor bail-in is preferred or a variant strategy, feasibility of bailing-in existing debt issuances needs assessment. - Steps needed to ensure banks have sufficient loss absorption and recapitalization capacity and that NBG bail-in decisions will be upheld in foreign jurisdictions if challenged. ### Deposit insurance, liquidity support and funding arrangements - Deposit insurance coverage: - Coverage increased from GEL 5,000 to GEL 15,000 and now fully covers deposits of 97 percent of resident and non-resident natural persons. - Expansion of eligibility to legal entities is pending in Parliament; if legal entities gain coverage, roughly 13 percent of total deposits will be insured. - Payout and back-up funding: - Steps taken to reduce payout initiation period to the seven-day international standard. - Back-up funding arrangements are in place but need strengthening. - Recommendations include: - DIA should secure a backstop line of credit from the MoF to be able to replenish the DIF in time of need. - DIA should agree a framework with NBG to borrow against its investment portfolio to raise cash if required to make a payout. - MoF and NBG should consider developing an internal contingency policy framework clarifying situations that might indicate scope for MoF direct funding beyond regulations; the policy should address potential role of NBG Emergency Liquidity Assistance (ELA) in resolution financing, including guidance on use of temporary public financing via the Resolution Fund to repay any NBG ELA that might have been granted. - Amend the DI Law to allow for preemptive replenishment of the DIF (near term recommendation). ### Contingency planning and crisis management - Contingency planning status and needs: - Authorities need to prepare institution‑wide contingency plans for crisis management and adopt formal plan testing programs. - Plans should dovetail into a national-level plan and testing program under auspices of the IFSC. - Documented institution-wide contingency plans would enhance crisis preparedness, improve efficiency of resolution and crisis management, and reduce potential demand on temporary public funding. - Plans should be tested periodically and enhanced based on testing outcomes. - IFSC role: - Role of the new IFSC in coordinating contingency planning and crisis management work needs to be further specified. ### Key operational and policy recommendations (selection drawn from Table 1) - Institutional framework - Further specify IFSC roles and responsibilities in normal and crisis times with emphasis on role in normal times — MoF, NBG — Timing: I - Amend the Special Manager Rule to define necessary skill set and ensure NBG staff only undertake that role in extraordinary circumstances — NBG — Timing: I - Recovery planning and early intervention - Amend Recovery Planning Rule to require thresholds for triggering management escalation are set sufficiently above minimum prudential regulatory requirements — NBG — Timing: I - Develop policy guidance to ensure timely action, including initiation of license revocation or alternative failure resolution action, is taken promptly in response to financial deterioration — NBG — Timing: I - Resolution powers and planning - Update creditor hierarchy by adopting a simplified tiered structure consistent with deposit insurance coverage — MoF, NBG — Timing: I - Adopt a rule articulating policies and procedures for use of sale of business tool that encourages competitive bidding — NBG — Timing: NT - Adopt a regulation requiring all new debt issuances to contain contractual clauses recognizing instrument is subject to bail-in by NBG — NBG — Timing: NT - Increase legal certainty for NBG bail-in decisions in foreign jurisdictions — NBG — Timing: NT - Undertake stock-taking to determine which non-SIBs should be prioritized for accelerated resolution planning — NBG — Timing: I - Set MREL for SIBs — NBG — Timing: NT - Establish, operationalize and fund a bridge bank — MoF, NBG — Timing: I - Analyze and take steps to minimize legal uncertainty about whether resolution decisions will be sustained in Court — NBG — Timing: I - Deposit insurance, liquidity support and temporary public funding - Secure back-stop DIF financing from the MoF — DIA, MoF — Timing: I - Amend DI Law to allow preemptive replenishment of DIF — MoF, NBG — Timing: NT - Agree arrangements for execution of MoF guarantee for NBG ELA — MoF, NBG — Timing: NT - Contingency planning and crisis management - Prepare crisis management contingency plans and adopt plan testing and improvement programs at agency and national level under auspices of IFSC — All — Timing: NT *Source: EXECUTIVE SUMMARY, Technical Note prepared for Georgia FSAP mission (virtual, January 28–February 16, 2021).* ### 7. There have been four noteworthy instances of license revocation since the prior FSAP. ### 7. There have been four noteworthy instances of license revocation since the prior FSAP. ### License revocations since the prior FSAP - Four noteworthy instances of license revocation occurred since the prior FSAP. - One bank: license revoked due to violations of anti-money laundering laws and requirements; the liquidation was terminated with no loss incurred by depositors or creditors. - Second bank: most assets and liabilities were acquired by another bank and the remaining assets and liabilities were liquidated; the NBG-administered liquidation was terminated with no loss incurred by depositors or third-party creditors. - Two instances involved foreign parent banks: - One subsidiary: license revoked in September 2016 due to revocation of the parent bank’s license in a foreign jurisdiction. At that time, the NBG Law required revocation of the Georgian subsidiary if the parent’s license was revoked abroad. The Georgian subsidiary was in generally sound condition and the liquidation was terminated with no loss incurred by depositors or creditors. - Another subsidiary: license revoked due to the foreign parent bank’s decision to close its Georgian subsidiary. The bank managed a wind-down except for a small number of depositors’ accounts whose owners could not be located. In absence of legal provisions specific to voluntary bank liquidation, the NBG revoked the license and an NBG-administered liquidation was commenced. This enabled the recently established DIA to act as intermediary for those depositors’ funds, which will be transferred to an agent payout bank upon claim by the owners, with any unclaimed funds eventually being transferred to the NBG. ### The financial safety net — Institutional framework - Authorities most relevant to the safety net: the Ministry of Finance (MoF), the NBG, the DIA and the Insurance State Supervisory Service (ISSA). - MoF responsibilities: any use of public funds in dealing with bank failures and systemic crises; promoting sound functioning of the financial system. - NBG roles: supervisory and resolution authority for banks; monetary authority; lender of last resort for banks. - DIA roles: administers the DIS and the DIF; functions essentially as a paybox and may only reimburse insured deposits via payment to the depositor in the event of the liquidation of a bank; has no supervisory powers. - ISSA: supervises the developing insurance industry, largely health and property insurance with very limited life insurance penetration. ### Resolution governance and operations - 2019 NBG Law amendments established a Resolution Committee (RC): - RC composition: NBG Governor and all Deputy Governors (currently two); chaired by the Governor. - RC oversight: failing bank resolution functions, especially for systemic banks, including resolution planning, decisions to exercise resolution powers and conduct of actual resolutions. - Reporting: RC is to report at least annually and upon request to the NBG Board. - A Charter further defines governance, membership, powers, responsibilities and decision-making procedures. - Under the Charter the Vice-Governor responsible for the new Resolution and Liquidation Division serves as Deputy Chair. - Transitional provisions require operational independence of resolution functions from supervisory functions be implemented within two years; presumption that another Vice-Governor will be added to the NBG Board to enable required operational separation. - Heads of relevant NBG departments are non-voting members; external experts may be invited if required. - The RC held its initial meeting in December 2020 and will likely meet next in June 2021. - Resolution and Liquidation Division (RLD): - RLD will execute resolution and liquidation functions; a preexisting liquidation unit was merged into it. - Current staffing: a division head and 3 staff; directly accountable to the Vice-Governor in charge of supervisory functions. - Recruitment: RLD management will recruit two additional staff during 2021. - RLD responsibilities: resolution planning and related activities, management of any bank failure situations including liquidations, and serves as secretariat of the RC. - RLD can request support of additional NBG staff and can contract external experts. ### Deposit insurance and coordination - Mandatory DIS for banks administered by the DIA; DIA established under the DI Law enacted in 2017. - DIA essentially a paybox: reimburse insured deposits only upon liquidation; no supervisory powers. - DIA and NBG have entered into a Memoranda of Understanding (MOU); cooperation reported to be good. - MoF and NBG MOU (2014) calls for creation of a Crisis Coordination Group (CCG) comprised of Minister of Finance and deputies and Governor and two Vice-Governors of the NBG; envisioned working group of MoF and NBG departments — neither the CCG nor the working group were formalized and made functional. - Establishment of a new Interagency Financial Stability Committee (IFSC) mitigates need for CCG: - IFSC created by 2019 NBG Law amendments to promote financial stability and develop crisis management mechanisms. - IFSC composition: chaired by the Minister of Finance and comprised of the Governor of the NBG, the Head of the DIA and the Head of the ISSA. - NBG to serve as secretariat though the task has yet to be assigned. - IFSC meeting frequency: at least annually and more frequently as required by the NBG. - Under the law, the NBG is to provide early notification to the IFSC in case a bank may need to be resolved or might require temporary public support and/or ELA. - IFSC Charter main tasks: develop mechanisms for financial crisis management; powers include requesting information from the NBG, reviewing need for last resort loans by the NBG, and reviewing need for temporary state funding of a bank in resolution; decision-making authority resides with the NBG and the MoF. - Secretariat of the IFSC is to plan and oversee periodic crisis simulation exercises. - Recommendation: roles and responsibilities of the IFSC in normal times and in times of crisis should be further specified. ### Special Manager and Temporary Administrator regimes - Special Manager (SM) regime introduced by 2019 amendments: - Banking Law stipulates NBG may exercise resolution powers directly or appoint one or more Special Managers to exercise such powers. - NBG published a rule on the role of the Special Manager (December 2020) clarifying the manager functions as an agent of, and reports directly to, the NBG. - Rule sets out selection and appointment process; NBG staff can be appointed. - Qualification: individual must meet “fit and proper” criteria and be free of conflicts of interest; rule specifies having “relevant professional experience” but does not elaborate on what experience is relevant. - Powers: SM can exert full control over the bank and assume authority of all bank bodies (Management Board, Supervisory Board and General Meeting of Shareholders). - Term: up to one year, extendable. - Recommendations: NBG should amend the rule to define the desired skills set (for example, managerial and leadership experience in running and restructuring banks or other businesses) and establish a presumption that NBG staff have a conflict of interest and should only serve as Special Manager in extraordinary circumstances; steps should be taken to identify qualified independent professionals willing and able to serve as a Special Manager. - Temporary Administrator (TeA) regime: - 2019 amendments substantively revised the existing TeA regime. - Prior to the new resolution regime, TeA could function in a resolution capacity by exercising powers of the General Meeting of Shareholders; this capacity has been revoked and vested with the Special Manager, rendering TeA applicable as a supervisory intervention tool only. - In practice, NBG has not imposed a TeA in any bank since the prior FSAP. ### Legal protections and MOUs - Legal protections: - NBG Law provides that current and former NBG staff cannot be held personally liable for actions or omissions taken in good faith, and that the NBG shall defend their interests. - Protections apply to TeAs, SMs, Liquidators and administrators of bridge banks; also apply to external parties contracted by the NBG based on a contract of employment. - Comparable legal protections exist for DIA staff. - MOUs: - NBG has MOUs with relevant foreign supervisory authorities but none specific to resolution purposes; NBG views existing MOUs as sufficiently broad to accommodate information sharing, cooperation and coordination in failure resolution where supervisory authority is also the resolution authority. - In some cases a foreign authority did not enter into a formal MOU, but cooperation in practice is reported to be good. - To date there have been no cases of cooperation with the work of foreign resolution authorities. - Recommendation: RLD should review the current inventory of MOUs to determine whether revised or new MOUs should be pursued for resolution purposes. - MoF/NBG MOU: - The MoF/NBG MOU (2014) provides for sharing of personal, commercial, and professional information subject to limits; given recent developments, the MOU should be reviewed and updated with consideration of specific recommendations in this Note. ### Summary of Recommendations - Review the MoF/NBG MOU in light of the recommendations in this Note and update as necessary; - Review the current inventory of MOUs to determine whether revised or new MOUs should be pursued for resolution purposes; - Further specify the roles and responsibilities of the IFSC in normal times and in times of crisis; - Amend the Special Manager rule to define the desired skills set and to establish a presumption that NBG staff have a conflict of interest and should only serve as Special Manager in extraordinary circumstances; and - Identify qualified independent professionals who are able to serve as a Special Manager. ### Recovery planning and early intervention — key points - The Key Attributes require any bank that could have an impact on financial stability to be required to prepare a recovery plan: - Recovery plans should: (i) define measures to address shocks to capital or liquidity; (ii) set out credible recovery options for a range of stress scenarios covering idiosyncratic and market-wide stress; and (iii) define clear backstops and escalation procedures, identifying quantitative and qualitative criteria that would trigger implementation. - Supervisors should have the power to require improvements in plans and, if necessary, require implementation of recovery options. - Timely intervention: - Resolution should be initiated when a bank is no longer viable or likely to be no longer viable and has no reasonable prospect of becoming so. - Authorities should act early, before a bank has incurred losses exceeding its equity capital. - There should be clear standards or indicators of nonviability to guide decisions. - Recovery planning in Georgia (2019 amendments and implementing rules): - Banking Law includes provisions requiring banks to prepare recovery plans; NBG has published an implementing rule. - Plans required for all banks including branches of foreign banks; plans must be approved by supervisory boards and updated annually or when changes material to the plans occur. - NBG is to review plans and is authorized to require banks to make specific changes; banks and banking group entities must cooperate and supply information as required. - The Recovery Plan Rule sets out factors for NBG assessment; NBG to provide conclusions within three months of receiving the plan (by means of a letter signed by the Vice Governor responsible for supervisory activities), and the bank is to revise the plan within two months. - NBG may take supervisory enforcement action as necessary to ensure compliance. - All banks required to submit comprehensive recovery plans by May 31, 2022. - Transitional deadlines: - SIBs required to submit plans addressing one stress scenario by January 1, 2021 and additional stress scenarios by July 1, 2021; the first submission by the three SIBs were delayed due to pandemic but were received in the first quarter of 2021. - Other banks to submit plans addressing one stress scenario by June 30, 2021 and an additional stress scenario by December 31, 2021. - The Recovery Plan Rule adheres closely to internationally adopted guidance; stress scenario requirements described in the Regulation adhere well to internationally adopted standards. - Critical Functions: - Banks must prepare a self-assessment of critical functions as part of recovery plans; NBG issued a Critical Functions Rule that adheres closely to international guidance. - Rule provides detailed criteria for identification and assessment of critical functions and shared critical services. - Banks must update self-assessments annually; NBG review process mirrors recovery plan review and allows NBG to make its own assessment if a bank’s self-assessment is unsatisfactory where there are concerns regarding possible economic or financial system impacts. *Source: 1geoea2021007 - 7. There have been four noteworthy instances of license revocation since the prior FSAP.* ### 24. The triggers for assessing whether recovery options should be implemented should be ### 1geoea2021007 - 24. The triggers for assessing whether recovery options should be implemented should be ### Recovery planning triggers and rule amendments - Triggers for assessing whether recovery options should be considered should be set well above regulatory minimums. - The Recovery Plan Rule currently provides guidance on setting triggers but does not indicate the relationship between those thresholds and the minimum prudential regulatory requirements. - Recommendation: Amend the Recovery Plan Rule to make clear that thresholds for triggering escalation within management and decisions on implementing one or more recovery options should be set sufficiently above the regulatory minimums to preclude any breach of those minimums. ### NBG review process, quality assurance, and bank engagement - The NBG is working with banks and has made internal preparations to review and comment upon recovery plans. - As set out in the Recovery Planning Rule, the NBG is to assess whether each recovery plan is compatible with and satisfies all the requirements laid down in the rule and is to evaluate its completeness, quality and efficiency. - The NBG has held a series of meetings with the banks to clarify expectations for recovery plans and critical function self-assessments. - Institutional responsibilities for plan review: - Bank Supervision Department will lead the review of recovery plans. - Inputs to be obtained from the Supervisory Policy Department, the Specialized Risks Department and the RLD. - To promote improvement in the quality of recovery plans over time: - The NBG should consider formally seeking feedback from banks to determine scope for clarifying and perhaps simplifying the Recovery Plan and Critical Functions Rules. - The Bank Supervision Department needs to be alert to bank management viewing recovery planning as a compliance exercise rather than a means to improve bank risk management. - Ensuring the rules are practically suitable for that purpose in smaller banks will be important. - Efficiency is evaluated in terms of whether the plan can be practically implemented in a timely manner. ### Role of the Ministry of Finance (MoF) and critical function self-assessments - At present there is no role envisioned for the MoF in evaluating banks’ critical function self-assessments. - While the MoF should not evaluate an individual bank’s self-assessment, it should be informed of banks’ assessments of functions deemed critical to the economy and provided the opportunity to periodically present its views. - Recommendation: The NBG should seek input from MoF in assessing the adequacy of banks’ self-assessment of critical functions, either directly or through the forum of the IFSC. ### Scope of recovery plans (bank vs group level) - Recovery plans are required at bank level at present. - Consideration could be given to eventually requiring plans at group level, where relevant. - Group level plans would address recovery of sister entities (financial subsidiaries of the parent entity that are not subsidiaries of the bank itself). - Certain of these entities are significant participants in certain sectors, such as the insurance industry. - Group level recovery plans would also serve as a useful input to resolution plans. ### Early intervention powers and policy guidance - The Banking Law provides the NBG wide-ranging supervisory corrective action powers that can be used with respect to banks and their managers as well as to controlling persons. - The 2019 amendments incorporated explicit authority for the NBG to require a bank to implement one or more measures set out in its recovery plan, including restructuring debt and obtaining additional capital from significant shareholders as envisioned in the plan. - The NBG may appoint a Temporary Administrator (TeA) for the bank if supervisory corrective actions do not or are likely not to prove effective; the NBG issues a formal legal act imposing the TeA and specifying its roles, duties and powers. - The TeA’s capacity to function as the General Meeting of Shareholders was revoked in the 2019 amendments; a Special Manager regime was created with the power to function as the General Meeting of Shareholders. - Legal triggers in the Banking Law are broad and provide sufficient basis for the NBG to act before an institution has incurred losses exceeding its equity capital. - Gap: There is no explicit written policy guidance indicating which powers to use in which situations. - Recommendation: The NBG should develop detailed policy guidance geared to ensuring that timely action, including the initiation of license revocation or alternative failure resolution action, is taken promptly in response to financial deterioration in all banks. - One explicit goal of such a policy should be to mitigate the risk that the NBG forbears on action until failure is imminent. ### Summary of recommendations (as presented) - Amend the Recovery Planning Rule to ensure thresholds for triggering escalation within management and decisions on whether to implement recovery option are set sufficiently above minimum prudential regulatory requirements. - Seek feedback from banks to determine scope for clarifying and perhaps simplifying the Recovery Plan and Critical Functions Rules. - NBG should seek input from MoF in assessing the adequacy of banks’ self-assessment of critical functions. - Consider requiring recovery plans to be prepared at group level so as to address sister entities that are important participants in sectors other than banking in the financial system. - Develop detailed policy guidance to ensure that timely action, including the initiation of license revocation or alternative failure resolution action, is taken promptly in response to financial deterioration in any bank. ### Failure resolution powers and planning — overview - Recent legislative amendments provide clearer legal avenues to deal with a bank whose failure might give rise to systemic implications. - The NBG can resolve bank failures by means of liquidation with reimbursement by the DIA of insured deposits. - The new failure resolution powers offer alternatives to liquidation, substantially enhancing NBG’s capabilities relative to the former regime under which a TeA could assume the powers of the General Meeting of Shareholders. - Resolution planning supports effective use of failure resolution powers and is intended to: - Facilitate effective use of resolution powers to protect critical functions, make resolution of a systemic bank feasible without severe disruption, and without exposing taxpayers to loss. - Serve as a mechanism to evaluate in advance the menu of resolution tools under the legal framework for a specific bank or group. - Articulate a preferred resolution strategy and a backup strategy. - Resolution plans should specifically define means to preserve critical functions in threatened failure and identify impediments to implementation. - In principle, resolution plans should be prepared at least for all banks that could be systemically important in failure at the group and significant subsidiary levels. ### Liquidation, timelines, and practices - The NBG can initiate liquidation under the provisions of the Banking Law; Banking Law provisions override those in the general Law on Insolvency Proceedings. - The 2019 legal amendments clarified that liquidation is to be conducted with a view to preserve financial stability and to protect insured deposits while also maximizing value for creditors. - Grounds for license revocation are broad, including when a bank is expected to face significant financial problems or is likely to become insolvent; the law allows revocation if a bank requires extraordinary liquidity support from the NBG. - The Banking Law sets out the main procedures and timelines for liquidation; procedures and the NBG’s role are further elaborated by the NBG in a Liquidation Regulation. - The law and regulation are adequate to guide efficient liquidation; bank liquidations since the prior FSAP were concluded in a relatively short period of time. ### Liquidator appointment, conflicts of interest, and recommended changes - Under the Banking Law the Liquidator is appointed by, overseen by and accountable to the NBG, and in practice NBG staff are typically appointed to this role. - The Liquidator is authorized to transfer the failed bank’s assets to other banks along with some or all of its liabilities; consent of depositors, creditors or debtors is not required when transferring assets and liabilities. - Current practice: NBG staff typically serve as Liquidators; salary costs borne by the NBG while incidental expenses are borne by the liquidation estate. - Recommendation: The practice of appointing NBG staff as Liquidator should be phased out. - The Liquidation Regulation does not specify required skill sets of a Liquidator or address potential conflicts of interest. - Recommendation: The regulation should be amended to specify desired professional qualifications and to establish a presumption that NBG staff, as a general principle, have a conflict of interest and should only serve as Liquidator in extraordinary circumstances. - Recommendation: The RLD should identify third party professionals qualified to serve as Liquidators. ### Voluntary liquidation and conversions - The Banking Law does not make specific provision for voluntary liquidation or conversion from one form of regulated entity to another when initiated by shareholders. - Legal procedures for winding-up a sound bank upon shareholder decision are the same as those for NBG-administered liquidation of a failing bank. - Lack of explicit provision for voluntary liquidation has given rise to the need for the NBG to appoint a Liquidator to administer late stages of voluntary liquidation; this might trigger a deposit insurance payout. - Conversion procedures (e.g., branch license or microfinance organization license to commercial bank license) are not explicitly addressed, resulting in legal uncertainty and case-by-case handling with various administrative decisions (e.g., tax consequences). - Recommendation: The MoF and the NBG should plan to amend the Banking Law and other relevant legislation to explicitly address voluntary liquidation and conversion transactions. ### Creditor hierarchy and deposit insurance alignment - The creditor hierarchy in liquidation was updated as part of the 2019 amendments but should be further updated in view of increased deposit insurance coverage effective July 1, 2020. - Current priority sequence (after secured creditors, unsecured claims of the Resolution Fund and the NBG, then DIA subrogated for insured depositors or insured depositors themselves pending payment by the DIA) includes the following ordered items: - i) individuals up to GEL 10,000 in local and foreign currency; - ii) legal entities up to GEL 10,000 in local and foreign currency; - iii) individuals up to GEL 100,000 in local or foreign currency; - iv) individuals in local currency in excess of GEL 100,000; - v) individuals in foreign currency in excess of GEL 100,000; - vi) legal entities in local currency in excess of GEL 10,000; - v) legal entities in foreign currency in excess of GEL 10,000; - vi) loans disbursed by other banks to the liquidation estate; - vii) tax liabilities; and - viii) other claims. - Thereafter follow non-deposit claims of direct and indirect owners, subordinated debt and several tiers for various classes of regulatory capital. - Coverage was increased from GEL 5,000 to GEL 15,000 and legal entities are likely to gain eligibility. - Recommendation: Update the creditor hierarchy to reflect recent and planned changes in deposit insurance coverage and eligibility. - When updating, make the hierarchy consistent with deposit insurance coverage and any future coverage changes. - Employ a simplified tiered structure under which insured deposits have priority, followed by eligible uninsured deposits (amounts above the deposit insurance coverage limits at the time), other deposits (those ineligible for deposit insurance), and other unsecured claims. - Recommendation: Claims of a bank that lends to a liquidation estate should be reassigned to have the same priority as NBG unsecured claims. ### Systemic resolution powers, objectives, and tools - The 2019 amendments provided the NBG with substantial new powers to deal with the failure of a bank whose liquidation could give rise to systemic consequences. - The amended NBG Law specifies resolution objectives consistent with the Key Attributes: to ensure continuity of critical functions, to avoid a significant adverse effect on financial system stability, and to protect budgetary, other public funds, insured deposits, and client funds and assets. - The amended Banking Law sets principles to guide resolution action: shareholders shall bear losses first; creditors bear losses after shareholders in order of priority in liquidation; creditors in the same ranking should be treated equally (with certain limited exceptions); and insured deposits should be protected. - Comprehensive range of systemic bank resolution powers available to the NBG includes: - i) the power to write down shares and other regulatory capital instruments or convert regulatory capital instruments into shares or other instruments of ownership; - ii) the power to effect the merger of a bank under resolution with an acquiring bank (with the consent of the acquiring bank); - iii) the sale of business tool: power to effect the sale of the shares or any of the assets and liabilities of a bank under resolution to another bank; - iv) the bridge institution tool: power to transfer all or any shares, assets and liabilities of a bank under resolution to a bridge bank established by the MoF; - v) the bail-in tool: the power to write-down or convert liabilities (in addition to regulatory capital instruments) in order to recapitalize a bank in resolution or a bridge bank; - vi) the power to recapitalize a bank in resolution by causing the issuance of new shares. - The use of these resolution tools is not subject to the approval or consent of shareholders, debtors, creditors or depositors of the bank under resolution. - Where other laws applicable to the bank under resolution might interfere with implementation of these tools, the provisions of those laws do not apply. *Source: IMF staff note excerpt (1geoea2021007).* ### 41. With the sale of business tool, the NBG has the power to transfer the shares or any of ### 1geoea2021007 - 41. With the sale of business tool, the NBG has the power to transfer the shares or any of ### Sale of business; asset management companies; competitive sales - NBG power: transfer the shares or any of the assets and liabilities of a bank under resolution to an acquiring bank or to an asset management company. - Remaining assets and liabilities: dealt with under the Banking Law liquidation provisions. - Uses: - sell the sound operations of a failing bank to an acquiring bank; or - sell non-performing loans to an asset management company. - Current procedural gap: NBG has not adopted a rule articulating its policies and procedures for employing these legal provisions and should do so in the context of sales to third parties. - Important operational issue: how to organize competitive and transparent bidding for the assets and/or liabilities of a bank in resolution. - Note: “An asset management company could be a private non-bank entity operating with objective of maximizing the value of distressed assets.” (footnote) ### Bridge bank: powers, implementation, and limits - NBG power: transfer the shares and/or assets and liabilities of a bank under resolution to a bridge bank established by the MoF; an implementing rule has been issued. - MoF preparedness: authorized to establish in advance a joint stock company that can operate as a bridge bank upon NBG granting a license. - Management and operation: - Bridge bank is to be managed and operated on a professional and commercial basis. - NBG authorized to prescribe any requirements for its management and operation. - NBG may exempt a bridge bank from certain regulatory requirements for up to six months if required in the interest of financial stability. - NBG staff cannot serve as managers. - Bridge bank must be returned to the private sector as soon as feasible and must prepare an exit plan. - Licensing and operational rule: - NBG issued a comprehensive rule addressing objectives (continuation of critical functions), licensing, transfer process, administration, prudential regulatory requirements, and transfer to private sector (sale or merger) as expeditiously as possible. - Under the rule the supervisory board is to undertake its functions with the agreement of the NBG. - Interaction with sale-of-business: use of the sale of business tool in conjunction with use of the bridge bank tool is addressed in the Bridge Bank Rule (footnote). ### Bail-in, MREL, and recapitalization - Bail-in rule: NBG issued a rule defining in detail the manner in which bail-in (write-off of liabilities or conversion into shares) is to be affected. - Envisaged uses: recapitalization of a stand-alone bank in resolution and capitalization of a bridge bank. - Requires an action plan (post bail-in restructuring) to be developed/executed by the Special Manager and bank management team; action plan to be submitted to the RLD and Bank Supervision Department within one month of the bail-in transaction. - MREL authority: NBG has power to require banks to issue a specific volume of debt instruments that can be readily bailed-in, referred to as MREL, but has not yet done so. - Legal and contractual gaps: - Current regulations do not require that debt issuances legally subject to bail-in contain contractual clauses highlighting potential write-off or conversion into equity. - Many existing senior and subordinated debt issuances (including those of the three SIBs) are issued in foreign jurisdictions and are subject to foreign law. - Recommendations to enhance legal certainty for bail-in: - Adopt a regulation to require all new debt issuances to include contractual clauses recognizing the instrument is subject to NBG bail-in. - In Bail-in Rule the NBG requires banks to individually certify that a bail-in decision with respect to each debt instrument is enforceable under foreign law; instruments lacking such certification will not count toward the bank’s eventual MREL. - Commission NBG legal analyses in each relevant jurisdiction on likely outcomes of investor challenges to NBG bail-in decisions to inform steps to increase extraterritorial legal certainty and to guide MREL setting. - Recapitalization by issuing new shares: - NBG issued a rule addressing power to recapitalize by issuing new shares; seen as used subsequent to bail-in. - Current gap: no mechanisms to require existing or new shareholders to subscribe new shares. - Recommendation: amend the rule to make clear that this power is to be used subsequent to full write-off of pre-resolution shareholders as part of bail-in, so that “existing shareholders” referenced are bailed-in creditors and not pre-resolution shareholders. ### Simplified acquisition procedures; stays and suspension powers - Simplified procedures for acquiring a significant share of a bank in resolution: - NBG issued a rule defining streamlined documentation requirements and review procedures to evaluate acquirer suitability and enable rapid decision-making and execution. - Banking Law acquisition thresholds requiring NBG authorization: 10 percent, 25 percent and 50 percent. - Procedures allow conditional consent subject to further assessment; conditional consent may involve suspension of acquirer’s voting rights or NBG exercising voting rights until final decision. - Stay and suspension powers: - NBG can impose a moratorium of up to 90 days to suspend payments due by a bank in resolution, except payments for insured deposit claims and claims associated with payment and settlement systems. - NBG can apply to the court to suspend for up to 90 days legal proceedings against a bank in resolution. - Law provides that no right or obligation under any contract to which the bank in resolution is a party may be terminated, accelerated, or modified by the bank’s counterparties solely due to initiation of resolution or any NBG resolution action. - NBG may impose a stay of up to two days on early termination rights arising with respect to financial collateral arrangements and netting arrangements/contracts of a bank. ### Valuations, creditor hierarchy, NCWO, and judicial interaction - Valuations in resolution: - 2019 Banking Law amendments specify valuation role. - To support license revocation decision: NBG to commission a valuation by an independent valuer using regulatory accounting standards; in urgency the NBG may base decision on its own valuation. - To support decisions on specific resolution tools and terms: NBG to commission an independent valuation using more conservative valuation principles, including liquidation value; in urgency may conduct its own valuation but must commission independent valuation as soon as practical thereafter and may adjust resolution terms based on that valuation. - A post-resolution independent valuation is required to determine whether creditors have been left worse-off under resolution than in liquidation (NCWO assessment). - Valuation rule and guidance: - NBG issued a rule providing guidance on rules, procedures and methodologies for valuations by independent valuers and provisional NBG valuations; specifies report content, valuer qualifications, and selection criteria; supported by a guideline elaborating valuation methodologies. - Gap: rule does not detail NBG expectations for information banks must make available to enable valuations; this should be specified and promulgated. - Creditor safeguards and NCWO: - Creditor hierarchy applicable in liquidation applies in resolution; creditor hierarchy must be respected when imposing losses. - Creditors in same class to be treated equally except in certain circumstances provided by law. - No creditor should incur a loss under resolution greater than they would have in liquidation — the No-Creditor-Worse-Off (NCWO) principle. - If independent valuation determines creditors incurred greater losses than in liquidation, they are entitled to compensation from the new Resolution Fund. - Recommendation: revisions to creditor hierarchy would reduce risk of successful NCWO claims. - Court role and interaction: - Court approval required for NBG to suspend legal proceedings against the bank in resolution; recent legal amendments require Court to issue decision within a day. - Court can confirm or declare NBG resolution action illegal; during appeal NBG’s actions remain in force. - Court is to defer to NBG quantitative and qualitative assessments unless manifest error; if Court finds resolution action illegal, legal effects of resolution actions are preserved and NBG is financially liable for any proven actual damages as determined by the Court. - Operational implication: legal provisions are untested; prudent to rely on robust resolution decision-making and clear policies/procedures to minimize legal uncertainty. ### Resolution planning, resolvability assessments, and MREL setting - Resolution planning regime and rule: - NBG issued a comprehensive rule defining contents of a resolution plan, procedures for assessing resolvability (identifying impediments), criteria for selecting preferred resolution strategy. - Rule calls for initial assessment of credibility and feasibility of liquidation; if liquidation would have adverse impact, a preferred resolution strategy identifying intended tools and variants is to be developed. - Plans to be reviewed annually and updated as necessary. - Coverage and timelines: - Initial resolution plans to be developed for the three SIBs; plans to be developed by the RLD by year-end 2021 and need RC approval. - RLD to develop process for assessing credibility and feasibility of liquidation for all banks; this task not envisioned to be initiated until 2022 owing to other RLD priorities. - Given pandemic stresses, RC should commission rapid stock-taking to determine whether banks beyond SIBs (specifically those where there is reasonable doubt that the bank could be resolved by liquidation and insured deposit payout without systemic consequences) should be subject to at least some form of resolution planning in 2021. - If so, NBG Board should consider bolstering RLD staff resources. - MREL and resolution plans: - NBG should leverage initial resolution plans to contribute to setting MREL for at least the SIBs. - In resolvability assessments, RLD working with supervisory and legal staff should analyze banks’ existing debt issuances with respect to practicality and legal certainty of executing bail-in in various jurisdictions; this analysis should guide MREL definition and setting. - Recommendation: adopt a formal policy decision on setting and implementing MREL as soon as practical, along with a timeline for phasing-in the requirements. *Source: 1geoea2021007 - 41.* ### 56. The MoF needs to take steps to be in a position to establish and operate a bridge ### 1geoea2021007 - 56. The MoF needs to take steps to be in a position to establish and operate a bridge bank ### Bridge bank establishment and operational readiness - The MoF is authorized to establish in advance a joint stock company that can apply for a banking license in time of need and "should set up such an entity as soon as feasible." - The MoF and the NBG should ensure information to be provided by MoF to the NBG to support a decision on licensing the entity as a Bridge Bank is prepared in advance. - The MoF will need to form a Supervisory Board that will meet the approval of the NBG; a protocol will need to be developed for coordination between the Supervisory Board and the NBG as "all Supervisory Board actions must be taken with the agreement of the NBG." - The MoF must make arrangements to be able to capitalize the Bridge Bank and prepare templates for required submissions to the Cabinet and Parliament. - Recommendation to consider establishing a joint working group between the MoF and NBG to carry tasks forward "within deadlines agreed by the Minister and the NBG Governor." ### Valuation capacity and RLD preparedness - The RLD is planning to contract independent experts to undertake valuations necessary to support decisions on: - entry into resolution, - the terms of the use of resolution tools, and - adjudication of potential NCWO claims. - The rule on valuations sets out relevant criteria. - The RLD should place at least two firms under standby contracts enabling them to initiate work within a short period of time, "such as within a week." - The RLD should solicit feedback from providers on the valuation rule, the guideline and the information requirements and make enhancements where indicated. - Regional expansion of Georgian financial groups may require the RLD to engage in cross-border analysis and cooperation (understanding host jurisdiction legislation, effectiveness of NBG resolution actions in host jurisdictions, ensuring cooperation with host resolution authorities), though "this is not situation at present." ### Summary of recommendations (selected) - Amend the Liquidation Regulation to specify desired professional qualifications of a Liquidator and to establish a presumption that NBG staff, as a general principle, have a conflict of interest and should only serve as Liquidator "in extraordinary circumstances." - Identify qualified third parties to serve as Liquidators. - Amend the Banking Law to include legal provisions specific to voluntary liquidation and conversions of one form of regulated entity to another. - Amend the Banking Law to update and simplify the creditor hierarchy by adopting a tiered structure consistent with deposit insurance coverage and by assigning the claims of a bank that lends to a liquidation estate the same priority as NBG unsecured claims. - Adopt a rule articulating policies and procedures for use of the sale of business tool with respect to third parties. - Adopt a regulation to require all new debt issuances to contain contractual clauses recognizing that the instrument is subject to bail-in by the NBG. - Commission legal analyses of likely outcomes of investor challenges to NBG bail-in decisions in relevant foreign jurisdictions and take steps indicated to increase legal certainty. - Clarify the rule on recapitalization by issuing new shares so it is clear the existing shareholders referred to in the rule are bailed-in creditors and not pre-resolution shareholders. - Expand the valuation rule to make clear NBG’s expectations for the information that banks have to make available in order to enable the valuations. - Consider implications for the sequencing of creditor bail-in when revising the creditor hierarchy. - Analyze and take any indicated steps to minimize uncertainty as to whether NBG’s resolution decisions will be sustained in Court. - The RC should commission a rapid stock-taking of all banks to determine whether banks other than the SIBs should be subject to at least some form of resolution planning in 2021. - Set MREL for SIBs "as soon as practical" and leverage the first round of resolvability assessments in doing so. - "The MoF should take steps to establish, operationalize and fund a bridge bank in collaboration with the NBG." - "The RLD should place at least two valuation firms under standby contracts to enable them to initiate work within a short period of time." - In placing independent valuers under contract, solicit their feedback on the valuation rule, the guideline and the to-be-specified information requirements and make enhancements where indicated. ### Deposit Insurance System (DIS) design, coverage and resource metrics - DI Law enacted in 2017 established the Deposit Insurance Agency (DIA) and the Deposit Insurance Fund (DIF). - The DIA is governed by a five-member Supervisory Board comprising the Minister of Finance, the NBG President, the Minister of Economy and Sustainable Development, and two independent members nominated and selected by the banks. "The chair of the Board rotates between the three ex officio members." - Current DIA permanent staff complement is six, and in addition employs five part-time specialist contractors. One position is vacant as present. - Deposit insurance is triggered upon the occurrence of an Insurance Case defined as commencement of liquidation, insolvency or bankruptcy proceedings under the Banking Law. - Under the DI Law, deposit payouts are to commence within 20 days of the occurrence of an Insurance Case. - Deposits in local and foreign currency are covered; payouts are only made in local currency. Foreign currency deposits are converted to local currency equivalent based on the NBG exchange rate on the date of occurrence of the Insurance Case. - In the event of a payout, the DIA becomes the first ranked creditor in liquidation after secured creditors and the unsecured claims of the NBG, the MoF and the Resolution Fund. - Depositors have up to three years to make a deposit insurance claim. - Original coverage: resident and non-resident natural persons eligible for insurance up to GEL 5,000 covering both local and foreign currency deposits. - Coverage increased to GEL 15,000 on July 1, 2020. - A legislative amendment pending in Parliament to extend coverage to legal persons (anticipated approval in its Spring 2021 session). - With original arrangements around 7 percent of total deposits were insured. With increase to GEL 15,000 around 11 percent became insured, and with planned expansion to legal entities around 13 percent of total deposits will be insured. - "The deposits of 97 percent of natural persons are fully insured." (An increase from 95 percent prior to adoption of the higher coverage level.) - Regular monthly risk-based premium caps under DI Law: 0.067 percent of insured local currency deposits plus 0.1 percent of insured foreign currency deposits. - After the coverage increase, the premium charged on local currency deposits was reduced to 0.03 percent; DIA concurrently increased the highest monthly premium for local currency deposits to 0.05 percent. - On average banks pay around 75 percent of the highest possible overall premium under the risk-based regime. - Extraordinary premiums may be assessed only if an Insurance Case causes DIF resources to be insufficient to fully reimburse insured deposits in the failed bank; extraordinary premiums are limited to 1 percent of insured deposits in a calendar year and are to be paid within 5 days. If deficiency remains, the DIA would have to borrow. - The DI Law provides that the DIA may borrow from the NBG and MoF, among other sources, but borrowing authorized only when an Insurance Case causes DIF resources to be insufficient to meet payouts associated with that Insurance Case. The DIA can enter into a line of credit arrangement in anticipation of possible need to borrow and may borrow from the NBG on a fully collateralized basis. - Recommendation: DIA should secure a back-up funding line of credit with the MoF and enter into a framework agreement with the NBG. - The DI Law establishes a 6 percent of insured deposits DIF target balance. Under the law, regular premiums must be paid until the DIF reaches the 6 percent target. Recommendation that DIA and MoF consider legal amendments to allow the target balance to be adjusted by the DIA Supervisory Board. - At year-end 2020: - DIF balance was GEL 60.5 million, representing around 1.5 percent of insured deposits. - At that level the DIA could payout the insured deposits of any but the seven largest banks (in terms of insured deposits) and could payout the six smallest banks combined. - Projected year-end 2021: - Projected total insured deposits approximately GEL 4.56 billion, of which GEL 466 million will be deposits of legal entities. - At current level of risk-based premiums, projected year-end 2021 DIF resources will approximate GEL 95.6 million, representing 2.1 percent of insured deposits. - The DIA projects the DIF will reach the 6 percent target in 2026, assuming no occurrence of an Insurance Case in the interim and that the coverage level remains unchanged. - DIA is completing implementation of a digital payout system intended to enable payouts via one or more agent banks with the seven-day internationally agreed standard. All banks have implemented the system; DIA is testing the ability of the largest banks to provide accurate data in the required format in collaboration with the NBG. - DIA intends to enter into standby contracts with two agent banks that can be activated in time of need to administer payouts. The DIA has one bank under contract at present. - Legal constraint: DIA does not have authority to transfer insured deposits to another bank nor to fund such a transfer by the liquidator; it can only reimburse insured depositors. The liquidation legal regime does explicitly provide power to transfer assets and liabilities to an acquiring bank. Recommendation: amend the legal regime to enable the DIF to fund P&A transactions in liquidation if lesser cost for the DIF. - Current constraints on ability to preemptively obtain additional resources for the DIF: - Inability to require banks to make an extraordinary premium other than where a single Insurance Case requires a payout in excess of the DIF balance. - Inability to borrow except in the same circumstance. - 1 percent per calendar year cap on extraordinary premiums. - Recommendation: MoF and DIA should amend the DI Law to allow for preemptive replenishment of the DIF (specifically by eliminating the constraint of there being a deficiency in the DIF balance for both borrowing and requiring an extraordinary premium and the 1 percent per calendar year cap on such premiums). - Voluntary liquidation is construed to be an Insurance Case under the DI Law due to absence of Banking Law provisions specific to voluntary liquidation; recommendation that NBG and MoF amend the Banking Law to adopt provisions specific to voluntary liquidation. - The DIA has drafted a Crisis Management Plan; the plan should be finalized and adopted by the Supervisory Board. The Board should require DIA management adopt a regular plan testing program. In 2021 the DIA intends to simulate a bank failure to test the functioning of the new payout MIS. ### NBG liquidity support (overview) - The NBG provides secured intra-day, overnight and term loans to banks and may provide a "last resort loan" (emergency liquidity assistance, ELA). - In addition to intraday and overnight facilities, the NBG offers standard seven-day and one-month auction-based facilities. - Note: In response to the pandemic crisis the NBG in April and May of 2020 established three additional temporary financing facilities that permit use of a broader range of collateral than is accepted for the standing facilities. *International Monetary Fund — Georgia Financial Sector Assessment (excerpts).* ### 74. The NBG has published a comprehensive Regulation of Financial Collateral ### The NBG Regulation of Financial Collateral; Emergency Liquidity Assistance; Temporary Public Funding; Contingency Planning ### Financial collateral framework and ELA - The NBG has published a comprehensive Regulation of Financial Collateral Management. The regulation, last updated in December 2018, specifies the forms of collateral eligible for each of its various facilities, including ELA. - The regulation specifies the means to register the pledge for all forms of assets and the procedures to foreclose upon and liquidate the assets in the event of default. Haircuts for all forms of assets are also published. - 2019 amendments to the NBG Law: - Allow the NBG to provide ELA to a bank whose solvency is in doubt, including a bank in resolution. Previously a bank was required to be solvent to be eligible, and ELA could be granted for a period not exceeding three months at an interest rate higher than the benchmark for the standard facilities. - The law provides that in exceptional circumstances the NBG may provide ELA to a bank whose solvency may be in doubt, such as a bank pending resolution action or a bank undergoing resolution. The law requires the bank be deemed to be viable under a realistic time-bound restructuring, rehabilitation or resolution plan that is to be accompanied by a funding plan, and that the ELA be secured by an unconditional and irrevocable guarantee issued by the MoF, in addition to any collateral taken by the NBG. - The NBG has published a policies and procedures rule for all forms of ELA (ELA Rule). The ELA Rule: - Stipulates the purpose of ELA as the prevention of potential systemic problems and financial crises or minimizing their negative impacts in order to ensure financial system stability. - By policy all ELA is to be provided in GEL though there is no legal restriction to lending in foreign currency. - The duration of ELA to a bank whose solvency is in doubt can be extended by an additional three months. - The Vice-Governor responsible to supervision initiates any request for ELA to the NBG Board, which must approve all ELA. - Recommendation: The rule should be amended to incorporate the role of the RLD and RC in initiating a request for ELA for a bank pending or undergoing resolution. ### MoF–NBG arrangements for MoF guarantees and DIA liquidity - The MoF and the NBG have yet to agree arrangements for the execution of the MoF guarantee for NBG ELA. A formal joint agreement should be pursued. - The joint agreement should address: - MoF’s expectations regarding NBG collateral requirements for ELA. - The relationship of ELA financing and potential Resolution Fund liquidity financing. - Detailed procedures for putting in place the guarantee and for calling upon the guarantee in the event of a default on the ELA and a consequent NBG loss, including the roles of both parties. - NBG lending to DIA: - The NBG can lend to DIA under certain conditions. Under the NBG Law lending is permitted if the DIA is facing a severe liquidity problem. The lending must be fully secured (NBG Law 31(4) & (5)). - This provision allows the NBG to liquify (convert to cash) the DIF in time of need, but no arrangements are in place at this time. - Recommendation: The DIA and NBG should enter into a framework agreement for this purpose. ### Temporary public funding and the Resolution Fund - 2019 amendments provide that the MoF can provide temporary public funding to support implementation of resolution actions either directly or by means of a new Resolution Fund. - Direct provision by the MoF can take the form of: - i) capitalizing a bridge bank; - ii) acquiring the equity of a bank in resolution and/or purchasing or guaranteeing its regulatory capital instruments; or - iii) providing loans, guarantees and/or financing in any other form. - The Resolution Fund can be used to provide: - i) loans to a bank under resolution or to a bridge bank; - ii) the guarantee of the liabilities of a bank under resolution or of a bridge bank; - iii) contributions to close any difference between the liabilities and the assets transferred to an acquirer under the sale of business tool or a bridge bank tool; - iv) contributions to absorb losses that have not been absorbed by shares or other liabilities in the use of the bail-in tool; - v) the payment of successful NCWO claims; and - vi) loans or guarantees to a purchaser in the context of the sale of business tool (including via merger). - Preconditions and NBG powers: - A precondition for any temporary public funding is that all shares, other regulatory capital instruments, other subordinated debt, debt with contractual write-down and conversion provisions, and any other claims of direct and indirect owners, should have fully absorbed losses to the extent of such losses. - Before the use of temporary public funding, the NBG may require any regulatory capital instruments that were not written-off to absorb losses to be converted into common shares under terms and conditions to be determined by the NBG. - A request for the use of temporary public funding is to be submitted by the NBG to the MoF. - Resolution Fund design and funding: - The Resolution Fund is ex post funded and backstopped by the banking industry. - The Fund is an account at the NBG that will be funded by the MoF, and/or via grants, borrowings, or other sources as provided by the National Budget. The MoF may issue guarantees for the liabilities of the Fund. - To the extent they are not recovered from the outcome of resolution action (e.g., from the resolved bank), any losses incurred by the Fund are to be repaid to the MoF by the banking industry, including branches of foreign banks. - The NBG is to manage and report on any activities of the Fund. - Joint Regulation (MoF and NBG): - The MoF and the NBG published a Joint Regulation guiding the use of temporary public funding and the operation of the Resolution Fund. - Although under the law the MoF has wide latitude in providing financing directly, the regulation limits the use of direct funding to the capitalization of bridge bank by policy; all forms of financing will be channeled through the Fund. - The regulation sets out the agreed content of the required written request by the NBG to the MoF for financing, including identification of the resolution tools to be employed, quantification of the nature and volume of necessary financial support, an assessment of the stability implications of using liquidation rather than the resolution tools, and the envisioned means of recouping the temporary public financing. - The regulation defines the information requirements necessary for the issuance of a MoF guarantee of Fund liabilities. - The procedures set out in the regulation provide adequately for rapid decision making. Under the regulation, consultations to support decisions can be made directly between the MoF and the NBG, or in the forum of the IFSC. - Internal policy framework recommendation: - The NBG Law and the Joint Regulation provide a high degree of flexibility in bringing to bear temporary public financing to support effective use of the resolution tools, suggesting the utility of having an internal policy agreed in advance. - The MoF and NBG should consider developing an internal contingency policy framework that will help ensure a shared understanding of situations that might arise that call for possible alternative policy responses. - The internal policy framework should address the potential role of NBG ELA in resolution financing, including expectations and guidance on the use of temporary public financing via the Fund to repay any NBG ELA that might have been granted. - Having such a framework in place will help facilitate rapid decision-making in possible extraordinary circumstances. - Parliamentary approval and timeliness: - The provision of temporary public funding by the MoF is subject to Parliamentary approval. The funding requires an amendment to the Annual Budget Law. - The draft amendments would need to be approved by the Finance Minister, the Cabinet and the Prime Minister and then submitted by the Prime Minister to the Finance and Budgetary Committee of the Parliament. - Under expedited procedures provided for in amendments to the Organic Budget Code as an element of introducing the new resolution regime, the committee has two days to discuss the draft amendment, and the full Parliament has five days within which to take a decision. It is expected the timeline can be accelerated in urgent situations. - Recommendation: The MoF should prepare in advance templates for the documentation that would need to be provided to Parliament to secure approval for the use of public funds. - Recommendation: When the fiscal space exists, the MoF should consider providing for an explicit contingency fund for this purpose in the annual budget. ### Summary of recommendations (temporary public funding and deposit insurance / liquidation arrangements) - DIA and NBG should enter into a framework agreement to be able to quickly liquify the DIF investment portfolio; - Consider amendments to the DI Law to provide that the DIF target balance can be adjusted by the DIA Supervisory Board. - Amend the legal regime to provide for P&A transactions in liquidation that are funded by the DIF. - Amend the DI Law that allow for preemptive replenishment of the DIF. - Amend the Banking Law to adopt provisions specific to voluntary liquidation. - The DIA’s Crisis Management Plan should be finalized and adopted by the Supervisory Board and the Board should require that DIA management adopt a regular plan testing program. - Amend the ELA Rule to incorporate the role of the RLD and RC in initiating a request for ELA for a bank pending or undergoing resolution. - The MoF and the NBG should enter into an agreement regarding arrangements for the execution of the MoF guarantee for NBG ELA. - The MoF and NBG should develop a written internal policy framework addressing temporary public funding, including the use of temporary state financing to repay NBG ELA. - The MoF should prepare in advance templates for the documentation that would need to be provide Parliament to secure approval for the use of public funds. - The MoF should consider providing for an explicit contingency fund for temporary public funding of bank resolutions in the annual budget. ### Contingency planning and crisis management - Current status: - None of the authorities have in place a formal agency-wide contingency plans addressing their roles in systemic failure and other crisis situations, nor is there an agreed national contingency plan. - Priority in recent years was on establishing a substantially enhanced legal framework and attendant policy and procedure regime. - Need for contingency plans: - Attention should now be given to preparing formal contingency plans within each individual authority and at the national level. - Having well-developed contingency plans in place would enhance crisis preparedness and improve the efficiency of resolution and crisis management activity, resulting in, among other benefits, reduced potential demand on temporary public funding to resolve problems. - A prerequisite first step is for each authority to develop their own internal contingency plan for executing their legal powers and responsibilities quickly and effectively under stress situations. - Stress situations will normally be characterized by the need to make decisions rapidly under conditions of imperfect information, to execute those decisions in what will likely be a chaotic environment, and to communicate clearly to the public and vested interests. - Individual authorities’ plans should dovetail into a national level plan. The individual and national level plans should be tested periodically and enhanced based on what is learned during testing. - Role of the IFSC: - The IFSC should play a leading role in contingency planning and crisis preparedness and its Charter should be amended to make this clearer. - Under the NBG Law, the IFSC’s objective is to support stable financial system functioning and to develop mechanisms for financial crisis management. - The law requires the NBG to provide notification to the IFSC of the possible provision of ELA and any request to the MoF for temporary public funding. These legal provisions indicate a role for the IFSC in normal times and in potential crisis times. - The Charter could more clearly distinguish between the IFSC’s role in normal times and its consultative role in crisis times (decision-making authority resides with the NBG and the MoF). - The IFSC should have responsibility for coordinating the development of institution-wide contingency plans in each of the four member authorities with the goal that the plans can eventually be integrated into a national plan. - The IFSC should serve as a forum in which members periodically can share their plan testing programs and the results of tests conducted. - Under the Charter as currently framed, the IFSC secretariat (a unit within the NBG yet to be specified) is to prepare and oversee the conduct of periodic crisis simulation exercises. This responsibility should lie with the IFSC itself and be undertaken with the support of the secretariat. - The decision as to which NBG unit should serve as the secretariat should be taken with the IFSC’s role in normal times foremost in mind. - Governance action: - The governing bodies of the NBG, the DIA, the ISSA as well as the MoF should mandate development of internal institution-wide contingency plans and plan testing programs. - Plan testing should involve a regular program over a multi-year horizon geared toward enhancing preparedness by practicing implementation of the plan or elements of the plan and identifying scope for enhancements to plans. ### Summary of recommendations (contingency planning and crisis management) - When revising the IFSC Charter give emphasis to its role in normal times of overseeing contingency planning and plan testing programs, including crisis simulation exercises. - Assign the IFSC responsibility for coordinating development of contingency plans in each authority and for serving as a forum to share plan testing programs. - The IFSC should be responsible for overseeing the conduct of periodic crisis simulation exercises. - Each authority should prepare a crisis management contingency plan and adopt a plan testing and improvement program. - Undertake regular national level crisis-simulation exercises. *Source: 1geoea2021007 - 74. The NBG has published a comprehensive Regulation of Financial Collateral* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1geoea2021007.pdf_