## 1irlea2022005 ## Source details **Canonical URL:** [1irlea2022005](https://www.imf.org/-/media/files/publications/cr/2022/english/1irlea2022005.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2022/english/1irlea2022005.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2022/english/1irlea2022005.pdf.json) --- ### EXECUTIVE SUMMARY — Purpose, scope, and mission - This Note assesses the bank recovery, resolution, and crisis preparedness regime in Ireland. - Focus: laws, policies, procedures, institutional capacity and coordination arrangements for bank failure resolution and for managing financial distress and crises. - Excludes evaluation of the role played by the European Central Bank and the Single Resolution Board for Ireland’s largest banks. - Also assesses steps toward adopting a recovery and resolution regime for insurers. - Assessment guided by international standards, in particular the Key Attributes of Effective Resolution Regimes for Financial Institutions promulgated by the Financial Stability Board. - Mission timing: FSAP mission undertaken virtually during the period February 23 through March 28, 2022. ### Institutional roles and coordination - Principal authorities: the Central Bank of Ireland (CBI) and the Department of Finance (DoF); National Treasury Management Agency (NTMA) provides asset and liability management services and supports DoF shareholding responsibilities. - Central Bank functions: - Acts as both the supervisory (NCA) and resolution authority (NRA) and is responsible for the Deposit Guarantee Scheme. - Resolution functions carried out by the Resolution and Crisis Management Division (RES) within the Financial Stability Directorate; clear institutional and procedural separation from supervisory functions. - RES current approved staff complement: 33 (increase from 19 to 29 in 2018; FCPM addition accounts for increase to 33). - Minister of Finance and DoF roles: - Minister has statutory roles and responsibilities; certain Central Bank actions require notification and in limited circumstances prior Ministerial consent. - NTMA acts as agent of the Minister and supports Shareholding and Financial Advisory Division. - Interagency coordination: - Financial Stability Group (FSG): DoF, Central Bank, NTMA; chaired by DoF Secretary General and Central Bank Governor participates; oversees testing via simulation exercises. - FSG supported by Crisis Preparedness Group (CPG) and Communications Working Group (CWG). - Central Bank Financial Stability Committee (FSC) advises Governor; chaired by Governor; FCPM reports semi‑annually to FSC. ### Banking sector structure and scale (key figures) - Domestic retail banks (five banks): BOI, AIB, PTSB, UBIDAC, KBCI. - UBIDAC and KBCI are in the process of exiting the domestic market. - Together the five banks held roughly €316 billion in total assets on June 30, 2021, comprising roughly 40 percent of banking system assets. - All except PTSB are designated as SIs or are a subsidiary of an SI. - Three internationally oriented investment banks (CHIL, BBI, BofAE): - Held roughly €276 billion in total assets on June 30, 2021, comprising roughly 35 percent of banking system assets. - All three are designated as SIs and are members of groups designated as G‑SIBs by the FSB. - Ten other internationally oriented banks: held some €63 billion in assets on June 30, 2021. - Bank branches: - 29 bank branches at June 30, 2021, held total assets of roughly €125bn. - One branch (Danske Bank) holds special significance due to government banking contract. - System designation at year end 2021: - Six SIs, three SI subsidiaries, nine LSIs and 29 branches operating in Ireland. - Only four SIs, one LSI and one branch were deemed to provide critical functions or be significant to the Irish market. - Government ownership stakes at year end 2021: - Roughly 6 percent common equity interest in BOI Group. - 70 percent interest in AIB Group. - 75 percent interest in PTSB Group. - Since 2020 the Minister also owns 100 percent of the NAMA. - Investment funds industry (as at 30 June 2021): - Total net assets of Irish domiciled funds: €3.7 trillion. - Net assets under administration (including non-Irish funds serviced in Ireland): €5.3 trillion. - Net assets under custody: €3.7 trillion. ### Developments since the prior FSAP and preparedness - Authorities adopted comprehensive new policy, procedure and coordination frameworks for bank resolution and crisis management. - Crisis management frameworks invoked for Brexit and the COVID-19 pandemic; these invocations led to enhancements. - Extensive use of simulation exercises; testing program is well institutionalized and overseen by the FSG. - Central Bank developing a structured framework addressing use of early intervention powers and determination of whether a bank is likely to fail; planned simulation testing in 2022. - Emergency Liquidity Assistance (ELA) framework: undergoing testing and enhancements; continued work planned, including envisaged simulation exercise for 2023. - Department of Finance developing an Incident Response Protocol to complement interagency and Central Bank protocols. ### Recovery planning and supervision - Recovery planning by banks initiated in 2015 and 2016 is well advanced and quite mature. - Central Bank defines annual work programs to ensure recovery plans are comprehensive, updated and executable. - Recovery planning requirement recently extended to insurers; insurers required to develop initial recovery plans by March 31, 2022 with High and Medium High impact insurers required to submit by April 14, 2022. - Central Bank powers to require banks to rectify weaknesses and to implement measures specified in recovery plans. - For LSIs: - Central Bank has direct supervisory responsibility for recovery planning in eight LSIs (as of end of January 2022). - No LSI recovery plan submitted in 2020 and 2021 were deemed materially deficient. ### Legal framework for insolvency, winding-up, and resolution - Bank winding-up and liquidation governed by the 2014 Companies Act and the 2011 Act. - Bank resolution (other than by liquidation) governed by Irish transposition of the EU’s 2014 Bank Recovery and Resolution Directive (BRRD) via the Irish Bank Recovery and Resolution Regulations (BRR Regulations) 2015 and BRR Amendment Regulations 2019. - Deposit Guarantee Scheme Regulations (DGS Regulations) transposed in 2015 (DGSD). - High Court role: - The Court must approve winding-up or resolution by other means of any failing bank; Central Bank must file Petitions and Verifying Affidavits. - Central Bank routinely seeks appointment of a provisional liquidator prior to official liquidation; ex parte petitions have achieved Court decisions in a single day in practice. - No comparable legal framework currently exists for insurers; insurer insolvency framework has deficiencies. ### Resolution planning, strategies, and execution capabilities - Resolution planning by the Central Bank and within banks (initiated in 2015/2016) is well advanced; preferred resolution strategies (PRS) and variant resolution strategies (VRS) specified. - Central Bank documentation: - 142-page NRA Handbook (first developed in 2017, updated February 2022). - 55-page Playbook and Step Plans (adopted May 2020). - RES should consider merging the Handbook and Step Plans into a single policies and procedures guide. - RES organization (four sections): Resolution Planning, Resolution Policy, Resolution Execution and Funds, and FCPM; Resolution Planning has four units focused on LSIs, UK SIs, US SIs, and domestic SIs. - MREL and bail-in readiness: - Binding MREL targets set on a linear basis with initial binding requirement for January 1, 2022, and final requirement to be met by January 1, 2024. - All LSIs that have a resolution strategy other than liquidation have met their 2022 MREL targets. - Banks preparing and enhancing bail-in playbooks. - Separability and sale of business planning: banks required to develop transfer playbooks and separability plans where sale of business tool is part of PRS or VRS. - Contingency planning gaps: - Central Bank has not prioritized preparations to quickly operationalize a Bridge Institution or an AMV; planning limited because bridge institutions are credit institutions and require an ECB licence decision. - The domestic market structure may constrain ability to execute private sector sale-of-business strategies. - Central Bank believes BRR Regulations override certain national competition rules; should seek confirmation from the competition authority. ### Resolution tools and Court processes (key elements) - Available tools (aligned with BRRD/Key Attributes): - Bail-in tool (write-down/convert eligible liabilities). - Sale of business tool (transfer assets and liabilities to third party or bridge). - Bridge institution tool. - Asset separation tool (AMV). - Use of these powers requires Court approval. - Other powers: - Write-down/write-off of equity, Additional Tier 1 and Tier 2 instruments. - Issue temporary stays on payments and prevent counterparties from terminating contracts. - Prior to write-down/convert powers the Central Bank should obtain a professional third‑party valuation; provisional Central Bank valuation permitted in exigent circumstances subject to ex post adjustment. - Public Interest Assessment (PIA): - Resolution action must be in the public interest and proportionate to statutory resolution objectives. - Central Bank conducts an initial PIA under an idiosyncratic scenario and in 2022 will begin considering system-wide scenarios. - Court orders and timing: - Resolution Order obtained via proposed resolution order (PRO) ex parte; Capital Instruments Order (CIO) required to write down/convert capital instruments and normally involves prior notice to affected entities (48 hours) unless exceptional circumstances. - Recommendations: consider legal amendments to eliminate certain notification requirements and to specify a short timeframe (e.g., 24 hours) for Court decision-making pertaining to resolution powers. ### Ministerial approval, conflicts of interest, and safeguards - Minister’s prior written consent required before Central Bank can make a PRO where proposed resolution action is likely to have systemic implications creating a serious risk to the stability of the financial system or the economy of the State. - No written policy between Central Bank and DoF on interpreting "systemic implications"; recommendation to consider limiting Minister’s prior consent to circumstances requiring fiscal resources. - Potential conflict: government ownership stakes in BOI, AIB, and PTSB could create the appearance of a conflict if resolution action would write-off government ownership interests; DoF should adopt mitigating arrangements. - Safeguards: - No‑creditor‑worse‑off (NCWO) principle in place; affected parties may claim compensation from the SRF if left financially worse off based on third‑party valuation. ### Emergency Liquidity Assistance (ELA) and solvency assessment - ELA provision discretionary by Central Bank; in BU ELA may be granted by NCBs subject to potential ECB objection. - Policy for ELA eligibility by policy: bank must be systemically important as well as solvent. - Request process: request addressed to Governor accompanied by bank Board confirmation of solvency; FSC convened and Governor is final decision‑maker. - Collateral policies and testing: well-developed collateral policies; 2021 comprehensive testing of ELA arrangements; FSC endorsed follow-on work in 2022 to formalize solvency assessment framework and prepare Central Bank‑wide procedures. - Prospective solvency: - Central Bank does not currently have written policies to guide a prospective solvency determination for banks entering or undergoing resolution; recommendation to develop policies and procedures for assessing prospective solvency to determine eligibility for ELA. - Currency and backstop: - By policy ELA provided only in euro. - State guarantee of ELA expired in 2018. - Central Bank and DoF should consider additional means to mitigate possibility of Central Bank suffering a loss from ELA, including potential DoF backstop of any Central Bank exposure to loss. ### Resolution funding, Single Resolution Fund (SRF), and constraints - Two primary resolution funding sources: the SRF and Central Bank ELA. - Irish authorities did not transpose BRRD discretionary provisions allowing direct state support. - SRF facts: - SRF administered by SRB. - Amount of SRF funding potentially available for Irish banks was roughly €44.7 billion as of June 30, 2021. - Conditions/constraints: - Prerequisite for SRF access for loss absorption and recapitalization (not liquidity): shareholders and creditors must first absorb losses of at least 8 percent of total liabilities and own funds. - SRF contribution limited to five percent of the bank’s total liabilities and own funds. - These constraints may impede resolution implementation where bail‑inable liabilities are insufficient. - Recommendation: Central Bank should consider how SRF restrictions may impede resolution and how to remedy or mitigate those impediments. ### Deposit Guarantee Scheme (DGS) — coverage, funding, operations, and payouts - DGSD harmonized features: - Coverage of deposits at €100,000. - Requirement to make payouts within seven business days from January 1, 2024. - Ex ante funding through risk‑based premiums. - Requirement to reach target fund balance of at least 0.8 percent of covered deposits by July 3, 2024. - Irish DGS specifics: - Governed by Financial Services (Deposit Guarantee Scheme) Act 2009, as amended, and 2015 DGS Regulations. - Contributory Fund balance as of June 30, 2021: €564 million. - Adopted DGSD minimum target Fund balance of 0.8 percent of covered deposits; current target balance projected to be roughly €1 billion expected to be achieved by December 2023 based on current covered deposit levels. - Fund investments: short‑term Exchequer Notes issued by NTMA; Central Bank as investment manager. - Concentration and payout prospects: - Deposits covered by the DGS are concentrated in five banks holding roughly 84 percent of total covered deposits at June 2021. - The five banks hold roughly 84 percent of total covered deposits; nine other banks together hold 3 percent. - 221 credit unions together hold around 13 percent of covered deposits. - Potential for a covered deposit payout in the banking industry is remote at present. - Payouts: - Covered deposit payouts triggered when the Court issues a Winding‑up Order and appoints a liquidator. - DGS statutory payout requirement: within 10 working days; in three credit union cases since prior FSAP payouts were made with seven working days. - In a payout the DGS subrogates the priority creditor status of covered deposits in liquidation. - DGS may be used to prevent the failure of a member or to finance transfer of covered deposits in winding-up, but Central Bank lacks written policies guiding such use and recommends avoiding use of the Fund for failure prevention. - Amount of DGS funds available to fund resolution capped at the greater of the amount DGS would have borne in liquidation or an amount equal to 50 percent of the target level of the DGS. - Operational readiness: - Operational requirements for single customer view data provided to banks in 2012 and credit unions in 2015. - Each bank’s ability to provide required data tested annually; sample of credit unions tested each year; all credit unions tested at least once. - Central Bank runs two full end‑to‑end simulation events per year using full depositor data files from two banks. ### Insurer failure regime and gaps - Current approach: - Insurer failures come under corporate insolvency framework (Administration, Examinership, Liquidation); Central Bank must petition the Court. - No insurer resolution regime currently in place comparable to BRRD‑style regime. - Ongoing work: - Central Bank and DoF published a public consultation on a National Resolution Framework for (re)insurers (September 2021); comment period closed with bulk of comments supportive. - Central Bank undertook a self‑assessment against the Key Attributes using FSB methodology; identifies gaps and proposes an action plan. - European Commission proposed an Insurance Recovery and Resolution Directive (IRRD) in September 2021; timing and scope uncertain and IRRD does not harmonize national insolvency frameworks. - Key weaknesses in insolvency framework for insurers: - i) Inability of the Central Bank to petition the Court for appointment of a liquidator to a reinsurer. - ii) Central Bank’s lack of oversight authority regarding actions of insolvency practitioners once appointed by the Court. - iii) Limited grounds on which Central Bank can petition the Court for appointment of a liquidator to certain types of insurers. - Recommendation: Remedy weaknesses in the insolvency regime for insurers, including any required legislative amendments. ### Crisis management, contingency planning, and testing - Interagency arrangements: - FSG adopted a Crisis Coordination Framework (CCF) in 2017 with Readiness and Activation states; invoked three times (two Readiness for Brexit, one Activation for COVID‑19). - CCF updated periodically; supported by CPG and CWG. - Financial Crisis Response (FCR) Protocol (Central Bank) adopted 2017; invoked five times; updated early 2022. - FSG oversees interagency contingency planning and testing; meetings typically bi‑monthly; minutes published three months in arrears. - Testing record: - Since 2017 FSG has undertaken four exercises; Central Bank has conducted six exercises since 2017. - Planned Central Bank and FSG exercises scheduled for 2022; program of planned Central Bank exercises submitted annually to FSC. - Resourcing and governance recommendations: - FSG’s Terms of Reference should be extended to encompass an annual update and discussion of member agencies’ contingency plans and testing regimes as they relate to systemic bank failures and financial sector crises. - DoF should pursue development of its Incident Response Protocol and initiate periodic testing when in place. - Central Bank and DoF should agree a written policy addressing potential use of Central Bank funds to supplement the DGS Fund and DoF’s contingent liability to repay those funds. ### Legal protections, gaps, and recommended remedies - Existing protections: - Central Bank Act, 1942: legal protection for Central Bank and employees absent bad faith. - BRR Regulations: senior management of Bridge Institution or AMV shall not owe legal duty or liability for acts/omissions in discharge of legal duties. - Gaps: - No explicit legal protection for liquidators or special managers selected by the Central Bank but appointed by the Court. - No explicit Central Bank policy providing for indemnification of costs incurred by Central Bank staff in defending resolution actions that may be in scope of statutory protections. - Recommended actions (text preserved): - DoF should explore providing statutory protections, subject to relevant limitations, to persons selected by the Central Bank albeit appointed by the Court for resolution purposes. - Consider developing an explicit policy providing for the indemnification by the Central Bank of the costs incurred by Central Bank staff in defending resolution actions which may be in scope of the existing legal protections. - When exploring statutory protections, DoF should explore threshold standards to hold a liquidator or special manager liable, whether and to what extent any court‑based protections are available, and whether such persons can benefit from any indemnity under the general corporate or insolvency frameworks. - Any indemnification policy should be elaborated by an operational framework ensuring timely and sufficient coverage for legal costs. ### Principal recommendations (selected entries from the Note's Table 1 and summary) - Ensure that the RES remains adequately staffed and resourced considering its evolving workload (¶29). Authority: CBI. Time: C. Priority: H. - Explore providing statutory protections to persons selected by the Central Bank albeit appointed by the Court for resolution purposes (¶30). Authority: DoF, CBI. Time: ST. Priority: H. - Finalize the Banking Crisis Management Playbook (¶39). Authority: CBI. Time: I. Priority: M. - Consider steps to limit the Minister’s prior written consent on bank resolution to circumstances that require the use of fiscal resources (¶54). Authority: CBI, DoF. Time: I. Priority: H. - Remedy weaknesses in the insolvency regime for insurers, including any required legislative amendments (¶63). Authority: CBI, DoF. Time: ST. Priority: H. - Develop policies and procedures for assessing the prospective solvency of a bank entering into or undergoing resolution to determine its eligibility for ELA (¶81). Authority: CBI. Time: ST. Priority: H. - Extend the FSG’s Terms of Reference to encompass an annual update and discussion of member agencies’ contingency plans and testing regimes as they relate to systemic bank failures and financial sector crises (¶102). Authority: CBI, DoF, NTMA. Time: I. Priority: H. - Pursue development of the Incident Response Protocol (¶104). Authority: DoF. Time: ST. Priority: H. *Source: EXECUTIVE SUMMARY and relevant sections from the Technical Note assessing Ireland’s bank recovery, resolution, and crisis preparedness regime (1irlea2022005).* ### EXECUTIVE SUMMARY ___________________________________________________________________________ 6 ### EXECUTIVE SUMMARY ### Purpose and scope - This Note assesses the bank recovery, resolution, and crisis preparedness regime in Ireland. - Focus: laws, policies, procedures, institutional capacity and coordination arrangements for bank failure resolution and for managing financial distress and crises. - Coverage excludes evaluation of the role played by the European Central Bank and the Single Resolution Board for Ireland’s largest banks. - The Note also assesses steps toward adopting a recovery and resolution regime for insurers. - The assessment is guided by international standards, in particular the Key Attributes of Effective Resolution Regimes for Financial Institutions promulgated by the Financial Stability Board. - Mission timing: FSAP mission undertaken virtually during the period February 23 through March 28, 2022. ### Institutional roles and coordination - Principal authorities: the Central Bank of Ireland (CBI) and the Department of Finance (DoF); the National Treasury Management Agency (NTMA) provides asset and liability management services and supports DoF shareholding responsibilities. - The Central Bank is both the supervisory (NCA) and resolution authority (NRA) and is responsible for the Deposit Guarantee Scheme. - The Minister of Finance has certain statutory roles and responsibilities with respect to failing banks and systemic crises; the NTMA supports DoF and represents Minister’s interests in state ownership stakes in three of Ireland’s five large retail banks and in IBRC liquidation matters. - Within the EU Banking Union: - The ECB exercises direct supervision of banks designated as Significant Institutions (SIs). There are six SIs in Ireland. - The SRB exercises resolution planning and decision-making powers over SIs and certain other institutions. - The Central Bank participates in ECB Joint Supervisory Teams (JSTs) and SRB Internal Resolution Teams (IRTs) and executes resolution decisions for both SIs and LSIs where required. ### Developments since the prior FSAP (2016) - Authorities adopted comprehensive new policy, procedure and coordination frameworks for bank resolution and crisis management. - No bank failures since the prior FSAP, but crisis management frameworks were invoked in the context of Brexit and the COVID-19 pandemic; these invocations led to enhancements. - Simulation exercises have been used extensively to test and enhance bank failure and crisis management frameworks; testing program is well institutionalized and overseen by the Financial Stability Group (FSG) chaired by the DoF Secretary General and the Central Bank Financial Stability Committee chaired by the Governor. - Central Bank resolution functions are carried out by the Resolution and Crisis Management Division within the Financial Stability Directorate; there is clear institutional and procedural separation from supervisory functions. - Division staffing levels have been increased in response to developments (notably Brexit and resulting new entry and expansion of regulated firms). - The division includes a function guiding development and testing of bank failure and crisis preparedness arrangements within the Central Bank and supporting the interagency FSG. ### Recovery planning and supervision - Recovery planning by banks, initiated in 2015 and 2016, is well advanced and quite mature. - The Central Bank defines annual work programs to ensure recovery plans are comprehensive, updated and executable. - Recovery planning requirement has recently been extended to insurers. - The Central Bank has extensive powers to require banks to rectify weaknesses and to implement measures specified in recovery plans. ### Insolvency, winding-up, and resolution legal framework - Bank and insurer winding-up and liquidation regimes are governed by national insolvency laws. - The insolvency legal framework is sound with respect to banks but has deficiencies for insurers. - Bank resolution (other than by liquidation) is governed by Irish transposition of the EU’s 2014 Bank Recovery and Resolution Directive (BRRD), as amended. - At present, no comparable legal framework exists for insurers. - The High Court plays a decisive role in the resolution of bank failures (liquidation or alternative resolution action); the Court must approve all relevant actions proposed by the Central Bank. - The Central Bank has policies and procedures to file prompt detailed petitions to the Court and arrangements to mobilize external experts to support petitioning and implementation of Court orders. ### Resolution planning and execution capabilities - Resolution planning by the Central Bank and within banks (initiated in 2015 and 2016) is well advanced; resolution strategies for all banks (liquidation and alternative resolution action) have been specified. - The Central Bank has developed detailed policy, procedure, and coordination frameworks for executing winding-up and resolution actions. - Substantial progress has been made to ensure banks not likely to be liquidated can be effectively and efficiently resolved. ### Insurer failure regime - Substantive efforts: self-assessment against the Key Attributes and issuance of a public consultation paper on an insurer resolution regime. - Adoption of an insurer resolution regime depends on progress at the European level (Insurance Recovery and Resolution Directive has been proposed). - Shortcomings in the insolvency framework for insurers can be remedied nationally; remedies can be implemented independently of EU action. ### Preparedness and ongoing work - The Central Bank is developing a structured framework addressing use of early intervention powers and determination of whether a bank is likely to fail; planned simulation testing in 2022. - Emergency Liquidity Assistance (ELA) framework has been undergoing testing and enhancements; continued work planned. - The Department of Finance is developing an Incident Response Protocol to complement interagency and Central Bank protocols put in place since the prior FSAP. ### Key concerns and potential conflicts - The Central Bank has statutory obligations to notify the Minister of certain steps and must obtain prior Ministerial consent for resolution action in limited circumstances. - Government ownership of banks that might be subject to Central Bank resolution action (requiring Minister’s prior consent) may give rise to the appearance of potential conflict of interest. ### Principal recommendations and actions identified as most important - The Financial Stability Group’s Terms of Reference should be extended to encompass an annual update and discussion of member agencies’ contingency plans and testing regimes as they relate to systemic bank failures and financial sector crises. - Steps to limit the Minister’s prior written consent on bank resolution to circumstances that require the use of fiscal resources should be considered. - The Department of Finance should explore providing statutory protections to persons selected by the Central Bank albeit appointed by the Court for resolution purposes. - The Central Bank should develop a policy in respect of indemnification of costs incurred by Central Bank staff in defending resolution actions which are in scope of statutory protections. - The Central Bank and Department of Finance should seek the views of the competition authority on the extent to which resolution regime legislation overrides national competition rules. - The Central Bank should develop policies and procedures for assessing the prospective solvency of a bank entering into or undergoing resolution to determine its eligibility for emergency liquidity assistance (ELA). - The Department of Finance and the Central Bank should remedy weaknesses in the insolvency regime as it applies to insurers, including any required legislative amendments. ### Summary of Key Recommendations (Table 1 highlights) - The Note’s Table 1 lists 16 numbered recommendations with specified Authorities, Time horizons and Priorities. Selected entries: - 1. Ensure that the RES remains adequately staffed and resourced considering its evolving workload (¶29). Authority: CBI. Time: C. Priority: H. - 2. Explore providing statutory protections to persons selected by the Central Bank albeit appointed by the Court for resolution purposes (¶30). Authority: DoF, CBI. Time: ST. Priority: H. - 3. Finalize the Banking Crisis Management Playbook (¶39). Authority: CBI. Time: I. Priority: M. - 4. Consider steps to limit the Minister’s prior written consent on bank resolution to circumstances that require the use of fiscal resources (¶54). Authority: CBI, DoF. Time: I. Priority: H. - 8. Remedy weaknesses in the insolvency regime for insurers, including any required legislative amendments (¶63). Authority: CBI, DoF. Time: ST. Priority: H. - 12. Develop policies and procedures for assessing the prospective solvency of a bank entering into or undergoing resolution to determine its eligibility for ELA (¶81). Authority: CBI. Time: ST. Priority: H. - 15. Extend the FSG’s Terms of Reference to encompass an annual update and discussion of member agencies’ contingency plans and testing regimes as they relate to systemic bank failures and financial sector crises (¶102). Authority: CBI, DoF, NTMA. Time: I. Priority: H. - 16. Pursue development of the Incident Response Protocol (¶104). Authority: DoF. Time: ST. Priority: H. - Time abbreviations: C – Continuous; I – Immediate: within 1 year; ST – Short Term: in 1 to 3 years. - Priority scale: H = High; M = Medium; L = Low. *Source: EXECUTIVE SUMMARY, Technical Note assessing Ireland’s bank recovery, resolution, and crisis preparedness regime.* ### 4. The Irish financial system is large and complex, encompassing a few institutions ### 4. The Irish financial system is large and complex, encompassing a few institutions ### Overview - The Irish financial system encompasses a few institutions servicing the domestic economy and a far larger number of firms operating internationally. - Banks are the institutions of most relevance for this Note, along with, to a lesser extent, credit unions and insurers. - All Irish banks are subsidiaries of either a domestic or foreign holding company or another foreign financial services firm; references to banks in this Note also refer to the group of which the bank is a part. - Other principal sectors: investment firms and investment funds. ### Banking sector structure and scale - Four main segments in the banking sector: - Domestic retail banks (five banks): Bank of Ireland Group plc (BOI), Allied Irish Bank Group plc (AIB), Permanent TSB Group Holdings plc (PTSB), Ulster Bank Ireland Designated Activity Company (UBIDAC), and KBC Bank Ireland plc (KBCI). - UBIDAC and KBCI are in the process of exiting the domestic market. - BOI, AIB and PTSB are subsidiaries of domestic holding companies. UBIDAC is a subsidiary of NatWest Group (UK). KBCI is a subsidiary of KBC Group NV (Belgium). - Together the five banks held roughly €316 billion in total assets on June 30, 2021, comprising roughly 40 percent of banking system assets. - All except PTSB are designated as SIs or are a subsidiary of an SI. - Three internationally oriented investment banks: Citibank Holdings Ireland Limited (CHIL), Barclays Bank Ireland Plc (BBI), and Bank of America Europe DAC (BofAE). - They held roughly €276 billion in total assets on June 30, 2021, comprising roughly 35 percent of banking system assets. - All three operate mainly in wholesale markets outside of Ireland, have only minimal engagement with Irish clients, are designated as SIs, and are members of groups designated as G-SIBs by the FSB. - Ten other internationally oriented banks: - Held some €63 billion in assets on June 30, 2021. - Most are subsidiaries of international banks. - Two are subsidiaries of SIs while eight are deemed LSIs. - Bank branches: - 29 bank branches at June 30, 2021, held total assets of roughly €125bn. - One branch, that of Danske Bank in Denmark, is of particular significance because it has a contract with the government to provide banking services, including social protection, wages and pensions payments, and transactional services with respect to tax collection. - At year end 2021: - Of the six SIs, three SI subsidiaries, nine LSIs and 29 branches operating in Ireland, only four SIs, one LSI and one branch were deemed to provide critical functions or be significant to the Irish market. - Nearly all banks servicing the Irish market are supervised directly by the ECB and are under the remit of the SRB for resolution purposes; these bodies fall outside the scope of this Note. - Exceptions under direct Central Bank supervision: PTSB and the Danske Bank branch. - Supervision and designation notes: - Of the 29 branches, 15 are branches of SIs headquartered in other EEA countries. - Of the eight LSIs (number reduced to eight with one bank converting to a branch), two are members of groups designated as G-SIBs by the FSB (JP Morgan Bank (Ireland) plc and Wells Fargo International BV). JP Morgan has recently converted to a branch and is no longer deemed an LSI in Ireland. ### Government ownership and state-related entities - Government common equity stakes in domestic holding companies at year end 2021: - Roughly 6 percent common equity interest in BOI Group. - 70 percent interest in AIB Group. - 75 percent interest in PTSB Group. - The government is selling its shares in BOI and AIB into the market on a near daily basis, thereby reducing its ownership interest. - Since 2020 the Minister also owns 100 percent of the NAMA. - ISIF holds the shares of BOI Group and AIB Group in a separate portfolio subject to the direction of the Minister. Shares of PTSB Group are owned by the Irish Exchequer under the direction of the Minister. ### Insurance, investment firms, and investment funds - Insurance and reinsurance sectors: - Mainly internationally focused; majority are subsidiaries of international groups. - October 2021 composition: 38 life insurers, 98 non-life insurers, and 60 reinsurance firms. - Supervised by the Central Bank, which is also responsible for managing the failure of any of these firms. - Only a small subset are considered systemically important to the domestic economy; only one insurer is owned by an Irish bank (an SI). - Investment firms: - Significant but mainly internationally focused; provide brokerage, investment advice, discretionary portfolio management and trading on own account. - At year end 2021 there were 101 investment firms operating in Ireland. - None are deemed by the Central Bank to be significant to the Irish or European economy. - Only one investment firm is affiliated to an Irish bank (an SI). - Sixteen investment firms fall within the scope of the bank resolution regime; application to investment firms is not within the scope of this Note. - Investment funds industry: - One of the largest in the world. - Principal fund types: Undertakings for Collective Investment in Transferable Securities and Alternative Investment Funds. - As at 30 June 2021: - Total net assets of Irish domiciled funds: €3.7 trillion. - Net assets under administration (including non-Irish funds serviced in Ireland): €5.3 trillion. - Net assets under custody: €3.7 trillion. ### Legal framework for failing banks - Irish legal framework was significantly enhanced by transposition of the EU recovery and resolution framework into Irish Law. - Key transpositions and regulations: - Irish Bank Recovery and Resolution Regulations (BRR Regulations) in 2015 (transposition of the 2014 EU Bank Recovery and Resolution Directive (BRRD)). - Irish BRR Amendment Regulations in 2019 (transposition of the 2019 amendments to the BRRD). - 2015 Deposit Guarantee Scheme Regulations (DGS Regulations) (transposition of the EU 2015 Deposit Guarantee Scheme Directive (DGSD)). - Additional measures: - Central Bank introduced a domestic recovery plan framework for insurers in 2021. - Result: authorities have extensive and mature policy and procedure frameworks to support implementation of recovery and resolution legislation. ### Recent failure experience - Since the prior FSAP: - No banks have failed or otherwise required resolution action. - Three credit unions and one non-life insurer have been wound-up. - Credit unions: - Failures occurred in 2016, 2017 and 2020; each had assets of less than €50 million. - Central Bank petitioned the High Court for winding-up orders and appointment of liquidators (provisional then official). - Appointment of a provisional liquidator triggered DGS repayment of all covered deposits. - One liquidation completed returned 96 percent of the DGS payout. - One ongoing liquidation has reimbursed the DGS for its entire payout; the second ongoing liquidation is anticipated to do the same. - Insurer failure: - One Irish insurer (CBL Insurance Europe DAC, CBLIE), part of an international group based in New Zealand, failed. - Central Bank directed CBLIE to cease writing new business in early 2018; related New Zealand group firm was placed into liquidation. - Central Bank petitioned the Irish Court for appointment of provisional administrator and subsequently an official administrator in early 2018. - In 2020 Central Bank petitioned the Court for a winding-up order and appointment of joint liquidators. Liquidation remains in progress; Court expected to rule on application of relevant law to priority of certain specific claims on the liquidation estate. ### Institutional framework, operational capabilities, and legal protections - Central Bank roles and internal structure: - Resolution and Crisis Management Division (RES) undertakes NRA functions and coordinates internal and interagency crisis preparedness and management; housed within Central Banking pillar; reports to Director of Financial Stability → Deputy Governor Central Banking → Governor. - Institutional separation between supervisory and resolution functions: Banking Supervision Division (BSD) and Investment Banking and Broker-Dealer Supervision Division (IBBD) are within Prudential Regulation pillar reporting to Deputy Governor Prudential Regulation. - Financial Crisis Preparedness and Management (FCPM) function in RES coordinates crisis preparedness. - Deposit Guarantee Scheme (DGS) operations: - Central Bank is responsible for the DGS; Payments and Securities Settlements Division (PSSD) handles day-to-day DGS operations and manages the Deposit Guarantee Contributory Fund (Fund). - Deposit Guarantee Scheme and Insurance Compensation Fund Oversight Committee is chaired by the Director of Financial Operations; includes representatives from RES; guided by formal Terms of Reference last updated in 2018. - Governance and advisory committees: - Central Bank Financial Stability Committee (FSC): - Advises the Governor on matters relevant to financial stability in Ireland and the euro area. - Chaired by the Governor; comprised of Central Bank senior management including Director of Financial Stability and Head of RES. - Guided by Terms of Reference last updated in 2021; Macro-financial Division serves as secretariat. - Monitors developments that may give rise to financial stability risks; oversees testing of crisis preparedness via simulation exercises. - FCPM reports semi-annually to FSC on crisis preparedness and testing work program in non-invocation years. - FSC advises Governor with respect to potential ELA; Governor is ultimate decision-maker for ELA. - Central Bank Resolution Committee (ResCom): - Advises the Governor on matters relevant to the resolution regime. - Chaired by Deputy Governor Central Banking; comprised of Director of Financial Stability, Director of Financial Operations, and Head of RES. - Meets at least quarterly; minutes provided to the Governor; guided by Terms of Reference last updated in 2021. - Minister, Department of Finance (DoF), and NTMA roles: - Minister and DoF have statutory responsibilities and powers with respect to failing banks and systemic crises; Minister must be informed and consulted in certain circumstances and prior approval may be required for certain Central Bank actions. - DoF’s Banking Division supports the Minister and serves as principal liaison with Central Bank’s resolution function; Shareholding and Financial Advisory Division performs ownership functions for three large domestic retail banks and NAMA and IBRC. - NTMA is an independent statutory agency operating as an agent of the Minister; provides asset and liability management, borrows for government and manages national debt; NTMA staff seconded to DoF’s Shareholding and Financial Advisory Division. - Judicial role: - The Court must approve winding-up or resolution by other means of any failing bank, as well as related interventions; Central Bank must file petitions with the Court. - The requirement to obtain a Court order is applicable to both SIs and LSIs. - Interagency crisis forum: - Financial Stability Group (FSG): DoF, Central Bank, NTMA. - Chaired by the DoF Secretary General; comprised of Assistant Secretary for Banking Division (DoF), Central Bank Governor and Deputy Governors (Central Banking and Prudential Regulation), Chief Executive and Director Funding and Debt Management (NTMA). - Principal objectives: share assessments of risks, discuss policies with potential financial stability repercussions, oversee interagency contingency planning and testing, coordinate management of a systemic crisis. - FSG typically meets on a bi-monthly basis; minutes published three months in arrears on the DoF website; FSG publishes an Annual Review. *Source: 1irlea2022005 - 4. The Irish financial system is large and complex, encompassing a few institutions* ### 24. The FSG is supported by a Crisis Preparedness Group (CPG) and a Communications ### 1irlea2022005 - 24. The FSG is supported by a Crisis Preparedness Group (CPG) and a Communications ### Crisis Preparedness Group (CPG) and Communications Working Group (CWG) - CPG composition: - a manager and a staff member from the DoF Banking Division; - the Head and a staff member of the FCPM; - a manager from the NTMA. - Chair and secretariat functions rotate among the three member authorities. - CPG roles and activities: - main out-of-crisis forum for coordination and communication between the agencies for crisis preparedness activities; - runs crisis simulation exercises to test the interagency framework; - supports interagency coordination in response to a crisis. - CWG: - a subgroup on communications coordinated by the CPG; - includes CPG members and communications specialists from the three agencies; - helps improve interagency coordination on public communications in out-of-crisis situations and supports public communications during a crisis. ### Cooperation with the Single Resolution Board (SRB) and Cross-border Coordination - A cooperation framework has been entered into by the SRB and the Central Bank (along with all other NRAs in the SRM) setting out practical arrangements for cooperation and information sharing. - Framework addresses both SIs and LSIs and defines rules on staffing, functioning and coordination of IRTs and procedures for SRB and NRAs regarding respective resolution responsibilities. - Central Bank’s NRA Handbook provides granular procedures for coordination with the SRB, including responsibility for executing resolution actions decided by the SRB. - Central Bank international coordination: - participates in four FSB-mandated Crisis Management Groups (CMGs) for banks designated as G‑SIBs; - participates in three European Resolution Colleges for third-country-headquartered banks with entities in two or more EU Member States; - participates in two Resolution Colleges led by the SRB for EU-headquartered SIs; - engages with the Canadian Deposit Insurance Corporation (CDIC) and has a Memorandum of Understanding for information sharing. ### Engagement with the Bank of England (BoE) and Brexit-related changes - Post-Brexit developments: - a number of firms shifted operations from the UK to Ireland, largely within the investment firm sector and also within the banking sector (notably three internationally oriented investment banks under SRB remit); - prior Resolution Colleges for two Irish domestic SIs with UK subsidiaries have been replaced by Stakeholder Forums (information-sharing bodies without decision-making authority); - Central Bank also established a Stakeholder Forum for PTSB with DoF participation. - Central Bank participates (under SRB lead) in two BoE CMGs. - No Irish LSIs with a resolution strategy other than liquidation have operations in the UK. ### Resolution and Operational Capabilities (RES structure and functions) - RES organization: - four sections: Resolution Planning, Resolution Policy, Resolution Execution and Funds, and the FCPM section coordinating financial crisis preparedness and management. - Resolution Planning: four units focused on LSIs, UK SIs, US SIs, and domestic SIs. - Resolution Policy: implements resolution policy framework, provides inputs to domestic and EU policy development, manages engagements with EBA and SRB. - Resolution Execution and Funds: two units responsible respectively for managing actual failure cases and maintaining resolution preparedness, and for ensuring statutory obligations with regard to resolution funds (e.g., Single Resolution Fund). - FCPM: responsible for coordinating Central Bank financial crisis preparedness and management internally and via engagement with the interagency FSG. - RES staffing and resources: - current approved staff complement: 33. - 2018: staff complement increased from 19 to 29 (driven largely by Brexit implications); addition of FCPM in 2018 accounts for increase to current 33 staff. - recommendation: Central Bank should continue to ensure that the RES remains adequately staffed and resourced in light of its evolving workload. ### Legal Protections and Gaps - Existing legal protections: - Under the Central Bank Act, 1942, persons to whom the legal protection applies are not liable for damages for actions or omissions in performance of their functions unless proved to be in bad faith; protections apply to the Central Bank and its employees. - Under the BRR Regulations, senior management of a Bridge Institution or an Asset Management Vehicle (AMV) shall not owe legal duty or liability to shareholders or creditors for acts or omissions in discharge of legal duties. - Identified gaps: - No explicit legal protection for liquidators or special managers (in banks undergoing resolution), who are selected by the Central Bank but legally appointed by the Court; liquidators bear personal responsibility for their actions. - No explicit Central Bank policy providing for indemnification of costs incurred by Central Bank staff in defending resolution actions which may be in scope of existing legal protections. - Recommended actions (textual recommendations preserved): - The DoF should explore the possibility to provide statutory protections, subject to relevant limitations, to persons selected by the Central Bank albeit appointed by the Court for resolution purposes. - Consider developing an explicit policy providing for the indemnification by the Central Bank of the costs incurred by Central Bank staff in defending resolution actions which may be in scope of the existing legal protections. - When exploring statutory protections, DoF should explore threshold standards to hold a liquidator or special manager liable, whether and to what extent any court-based protections are available to them, and whether such persons can benefit from any indemnity under the general corporate or insolvency frameworks. - Such an indemnification policy should be elaborated by an operational framework that provides certainty that all relevant costs will be covered, that the financial support will be provided in a timely manner, and that it will be sufficient to cover the cost of high-quality legal services. ### Summary of Recommendations (as listed) - Ensure the RES remains adequately staffed and resourced in light of its evolving workload; - Explore providing statutory protections, subject to relevant limitations, to persons selected by the Central Bank albeit appointed by the Court for resolution purposes; - Develop an explicit policy providing for the indemnification by the Central Bank of the costs incurred by Central Bank staff in defending resolution actions which may be in scope of the existing legal protections. ### Recovery Planning and Early Intervention - Supervisory split: - ECB-led Joint Supervisory Teams (JSTs) are responsible for supervision of SIs; Central Bank’s BSD and IBBD supervise LSIs. - Central Bank participates in eight JSTs; JSTs led by ECB coordinators with Central Bank providing sub-coordinator and additional staff as required. - For SI recovery plan assessments, JSTs supported by an ECB horizontal specialized expertise team. - Recovery planning for banks: - All Irish banks and their parent holding companies have well developed recovery plans in place; recovery plans first required in 2016. - Most plans updated annually, though Central Bank permits certain LSIs an 18 month submission cycle. - Central Bank has direct supervisory responsibility for recovery planning in eight LSIs (as of the end of January 2022). - BSD and IBBD responsible for assessing recovery plans, providing feedback, and following up on implementation; supported by Recovery Planning Team (RPT) experts and inputs from RES. - Annual feedback letters to banks’ Chief Executive Officer highlight deficiencies and make recommendations; recommendations must be addressed in the following year’s plan. - If deficiencies are deemed material, Central Bank would require an updated recovery plan to be submitted within two months. - No LSI recovery plan submitted in 2020 and 2021 were deemed materially deficient (this is the case with respect to all banks in Ireland). - Assessment focus has evolved toward feasibility of implementing specific recovery options, monetary values under stress scenarios, execution risk and removal of impediments to execution; aim to integrate recovery planning into banks’ overall risk management frameworks. - Cross-border engagement on recovery: - Central Bank engages with home country supervisory authorities; participates in home country supervisory colleges for more significant LSIs and maintains quarterly engagement with home supervisors on recovery planning topics. - Central Bank recently became a full member of the supervisory college for the branch that provides banking and payments services to the government and provided inputs to the branch’s recovery plan assessment. - Horizontal reviews: - Central Bank undertakes periodic horizontal reviews of recovery plans; most recent undertaken in 2019 focusing on usability, governance, indicators, scenarios, and recovery options. - Insurer recovery planning: - Under Central Bank regulations, nearly all insurers and reinsurers are required to develop, maintain, and update recovery plans beginning in 2022. - Insurers were to have initial recovery plans in place by March 31, 2022 with High and Medium High impact insurers required to submit those plans to the Central Bank by April 14, 2022. - Update frequency driven by Central Bank rating: High or Medium-High impact insurers required to update every 12 months; others every 24 months. - Insurers’ board of directors must approve recovery plans and updates; supervisors will assess plans and provide feedback using a procedure adapted from banks; initial assessments for all High or Medium-High impact insurers and a significant sample of other insurers’ plans. - Early intervention and FOLTF: - BRR Regulations (2015) strengthened early intervention framework and provide early intervention measures (EIMs) supplementing supervisory intervention powers in the 2014 Capital Requirements Regulation. - BRR Regulations allow Central Bank to require a bank to implement specific measures set out in its recovery plan. - Central Bank has not imposed EIMs on any LSI since the prior FSAP, nor granted forbearance from liquidity or capital prudential rules to any individual bank (though system‑wide relief was provided in response to COVID-19). - Central Bank does not have a documented framework for structured supervisory escalation addressing use of its various early intervention powers but is developing one. - The Banking Crisis Management Playbook (CMP) is being developed to incorporate a formal capital and liquidity trigger framework based on qualitative and quantitative triggers in line with EBA Guidance on early intervention (EBA/GL/2015/03, 29 July 2015). - Banking CMP to include proportionate supervisory actions for breaches of triggers, including a FOLTF determination; CMP work should be finalized. - FOLTF determination: - criteria defined by BRR Regulations and involve qualitative judgements on financial condition and ability to make payments; - triggers transfer of case from supervisory function to resolution function; - Deputy Governor Prudential Regulation informs the Minister upon a FOLTF determination; - resolution function determines whether winding up or alternative resolution action is appropriate. *Source: Excerpt from the provided IMF document content unit 1irlea2022005.* ### 41. Summary of recommendations: ### 1irlea2022005 - 41. Summary of recommendations: ### Bank winding-up and liquidation - Legal framework: - Winding-up and liquidation governed by the 2014 Companies Act and the 2011 Act. - Alternative resolution action governed by the BRR Regulations (Irish transposition of the BRRD). - No harmonized EU framework for bank winding-up and liquidation. - FOLTF process and Court petitioning: - When a FOLTF determination has been made, the Central Bank may petition the Court for a winding-up order and appointment of a liquidator on one or more grounds specified in the 2011 Act. - To secure a winding-up order the Central Bank must submit a Petition and a Verifying Affidavit to the Court. - The Governor, as Head of the Resolution Authority, decides whether to apply to the Court; the RES prepares and submits a Resolution Report to the Governor. - Petition and Verifying Affidavit are prepared by outside counsel in close cooperation with the Central Bank. - Preparations typically commence well prior to a FOLTF determination; a liquidator must be specified in the Petition and confirmed prior to filing. - The Central Bank maintains panels of qualified firms for outside counsel and liquidators; contracting and documentation in normal circumstances might take several weeks, but in practice the Central Bank has produced required documentation in a matter of a few days. - Provisional liquidator and ex parte procedure: - The Central Bank routinely seeks appointment of a provisional liquidator prior to official liquidation. - The Court may appoint a provisional liquidator ex parte (without advertisement or notice); this approach has been used in recent credit union failures. - Only a liquidator approved by the Central Bank may be appointed to a bank. - When petitioned ex parte, the Central Bank has obtained Court decisions in a single day. - Liquidation committee and objectives: - After a Winding-up Order, a liquidation committee is required: two representatives from the Central Bank (RES and PSSD representing the DGS) and one representative from the DoF. - Liquidator statutory objectives: - Objective 1: facilitate the Central Bank in ensuring DGS-covered depositors are promptly repaid, either directly or by transferring the amount to another bank approved by the Central Bank. - Objective 2: wind-up the affairs of the bank to achieve the best results for creditors as a whole. - Liquidator must notify the liquidation committee when Objective 1 is achieved; upon resolution that Objective 1 is achieved the committee ceases to exist and the Central Bank’s direct role is mostly completed. - Once liquidation has proceeded sufficiently the Central Bank will make a formal written request to the ECB to withdraw the license of the bank. - Creditor priority: - Creditor hierarchy in liquidation must be respected in resolution as well. - Covered deposits rank equally with unpaid taxes and employees’ wages. - Priority sequence: covered deposits (and those with priority status) -> eligible deposits from natural persons and micro, small and medium size entities that exceed covered deposits -> other unsecured creditors including holders of other uncovered deposits and senior bondholders. ### Bank resolution regime - Available tools (aligned with international standard and BRRD): - Bail-in tool: power to write-down and/or convert into equity eligible liabilities to absorb losses and recapitalize a bank in resolution. - Sale of business tool: power to transfer assets and liabilities from a bank in resolution without shareholder or creditor consent to third parties (or to a bridge institution). - Bridge institution tool: power to establish an institution temporarily owned by a state entity to acquire assets and liabilities from a bank in resolution to ensure continuity of critical functions until a buyer can be found. - Asset separation tool: power to transfer assets to an AMV established by a state entity for managing and maximizing asset value. - Use of these powers requires Court approval. - Other key powers: - Power to write-down or write-off a bank’s equity, and to write-down/write-off or convert into equity additional Tier 1 and Tier 2 capital instruments. - Power to issue temporary stays on payments and delivery obligations. - Power to prevent counterparties from terminating contracts. - Prior to exercising write-down/convert powers the Central Bank should obtain a professional third-party valuation; if not expedient a provisional Central Bank valuation may be performed subject to adjustment based on an ex post third-party definitive valuation. - Temporary stays and prevention of contract terminations can be exercised prior to taking resolution action or to facilitate implementation, but not both; their maximum duration is, in effect, what may be in practice 48 hours. - Use of these powers generally requires Court approval. - Public interest and PIA: - Condition for use of BRR resolution powers: it must be in the public interest. - Resolution action is in the public interest where necessary for, and proportionate to, one or more statutory resolution objectives and winding up would not meet those objectives to the same extent. - Central Bank approach aligned with SRB guidance: conduct an initial public interest assessment (PIA) under an idiosyncratic scenario as part of resolution planning and update/revise the PIA following a FOLTF determination. - In 2022 the Central Bank will begin considering system-wide scenarios in addition to idiosyncratic events in resolution planning PIAs. ### Court and procedural matters for resolution - Resolution Order and documentation: - Court authorization to use resolution powers is provided by a Resolution Order (obtained via a proposed resolution order (PRO) ex parte). - Documentation and procedures similar to those for a Winding-up Order; documentation and Governor authorization processes also similar. - Temporarily staying payments and delivery obligations or preventing counterparty terminations must also be provided for in a Resolution Order. - Capital Instruments Order (CIO) and notification: - A CIO is required to write down and convert capital instruments. - To obtain a CIO the Central Bank must adopt a proposed capital instruments order (PCIO) when, without execution, the bank (or group) would no longer be viable. - Except in exceptional circumstances or with consent, affected entities must be notified and given 48 hours, or an agreed shorter period, to make written submissions which must be considered by the Central Bank before making the proposed order. - The Central Bank applies ex parte to the Court; the Court must make the CIO if it finds the proposed order reasonable and not vitiated by an error of law; the order has immediate effect. - Affected parties can appeal to have the order set aside within 48 hours of publication, but the Court may only do so if it finds the determination was unreasonable and vitiated by an error of law or if there was non-compliance with the notice requirement. - Recommendation: Legal amendments to eliminate the notification requirement should be considered. - Differences between Resolution Order and CIO: - In seeking a Resolution Order there is no requirement to provide prior notice to affected parties. - In certain circumstances prior approval of the Minister is required for a PRO. - Recommendation: Legal amendments to specify a short timeframe (e.g., 24 hours) for Court decision-making pertaining to resolution powers should be considered. - Temporary administration and special managers: - To appoint a temporary administrator the Central Bank must make a proposed temporary administration order (PTAO) specifying grounds, role, powers and functions; ordinarily must give written notice and 48 hours to make written submissions prior to making a PTAO. - Recommendation: Legal amendments to eliminate the notification requirement should be considered. - The appointment of a special manager must be included as part of a PRO and must specify the person(s), remuneration, functions, limits, and which acts require the Central Bank’s prior written consent. ### Ministerial approval, appeals, and safeguards - Ministerial approval and notification: - Central Bank obliged to notify the DoF of certain decisions in run up to possible resolution action. - Minister’s prior written consent required before the Central Bank can make a PRO where proposed resolution action is likely to have systemic implications creating a serious risk to the stability of the financial system or the economy of the State. - There is no written policy between the Central Bank and the DoF on interpreting the statutory language regarding systemic implications. - Recommendation: Steps to limit the Minister’s prior written consent on bank resolution to circumstances that require the use of fiscal resources should be considered. - Grounds for setting aside Resolution Order: - Applications to set aside must be made not later than 48 hours after publication of the order. - The Court shall act as expeditiously as possible and may set aside, vary, or amend only where it is satisfied that the Central Bank’s decision was unreasonable or vitiated by an error of law. - Legal safeguards and NCWO principle: - Safeguards for shareholders and creditors set out in the international standard are in place. - Shareholders and creditors are protected from incurring losses greater than they would have in normal insolvency proceedings (the “no-creditor-worse-off,” or NCWO, principle). - If left financially worse off, based on a professional third-party valuation, affected parties are entitled to compensation from the SRF. *Source: 1irlea2022005 - 41. Summary of recommendations.* ### 57. Policies and procedures for decision-making and execution are elaborated and ### 1irlea2022005 - 57. Policies and procedures for decision-making and execution are elaborated and documented in the Central Bank NRA Handbook and in the Step Plans for the Resolution of a Failing Credit Institution. ### Central Bank decision-making and operational procedures - Policies and procedures are documented in: - The 142-page NRA Handbook (developed under the instruction of the SRB and in consultation with the Central Bank’s Standing Resolution Committee; first developed in 2017 and updated most recently in February 2022). - The 55-page Playbook and Step Plans (adopted in May 2020). - Handbook scope: - Addresses both winding-up and resolution action, the roles of the Central Bank and the DoF, and the authorities and roles of the SRB in the case of SIs. - Step Plans scope: - Address resolution action in both LSIs and SIs and the role of the Court in both cases. - Summary of Central Bank decision-making process for LSIs: - A FOLTF determination is made by the Deputy Governor, Prudential Regulation, after which the case is formally transferred to RES. - The Director of Financial Stability forms an institution-specific Resolution Committee (IS ResCom). - RES forms a Crisis Management Team (CMT). - The IS ResCom is chaired by the Director of Financial Stability and serves in an advisory capacity to the CMT. - The CMT works in specialized workstreams to address: i) the PIA; ii) valuation; iii) resolution scheme development; and iv) communications strategy. - If deemed to be in the public interest, a resolution scheme is proposed; if not, the CMT determines whether grounds to petition the Court for winding-up are satisfied. - RES prepares a report with findings and recommendations reviewed by IS ResCom, approved by the Director of Financial Stability and the Deputy Governor, Central Banking, and submitted to the Governor (the ultimate decision-maker). - Once decided, the Head of RES leads petitioning the Court to obtain either a Winding-up Order or a Resolution Order. - Document overlap and suggested consolidation: - The Handbook and Step Plans overlap in a number of respects. The Central Bank should consider merging them into a single policies and procedures guide for dealing with bank failures. ### Recovery and Resolution (R&R) Engagement Framework - Framework status: - Agreed in early 2022 by the Central Bank and the DoF. - Documents cooperation arrangements and expectations for engagement across stages including steady state, financial deterioration, supervisory directions and early intervention measures, emergency liquidity assistance, a breach of prudential liquidity or capital requirements, FOLTF, preferred resolution strategy determination, resolution decision-making and resolution execution. - Gaps and review: - The R&R Engagement Framework does not address all potential points of engagement, for example: - The potential step in resolution of the provision of ELA by the Central Bank. - All statutory requirements for notifications by the Central Bank to the Minister in the context of bank resolution. - The R&R Engagement Framework will be reviewed annually and these matters should be incorporated. - Note on multiple simultaneous failures: - In the event of multiple simultaneous failures, the FSG-CCF most likely would be the principal framework used to structure engagement between the Central Bank and DoF though the R&R Engagement Framework procedures will continue to be relevant. ### Minister’s potential conflict of interest and mitigating arrangements - Legal requirement: - The Minister’s prior written consent must be obtained before the Central Bank can petition the Court to issue a Resolution Order in certain circumstances. - Perception of conflict: - The resolution action would most likely result in the write-off of the government ownership interest, creating the appearance of a conflict of interest. - Current status and recommendation: - At present there are no mitigating arrangements in place and the DoF should seek to put them in place. ### Summary of recommendations (paragraph 60) - Consider legal amendments to: - Remove the requirement for advance notification to affected parties of planned use of certain resolution powers (write down and conversion of capital instruments; appointing a temporary administrator or special manager). - Specify a short timeframe (e.g., 24 hours) for court decision-making pertaining to resolution powers. - Steps to limit the Minister’s prior written consent on bank resolution to circumstances that require the use of fiscal resources should be considered. - Consider merging the NRA Handbook and the Step Plan documents into a single policies and procedures guide for dealing with bank failures. - Expand the scope of the R&R Engagement Framework to incorporate: - The potential step of providing ELA in resolution. - The statutory requirements for notifications to the Minister in the context of bank resolution. - Adopt arrangements within the DoF to mitigate the appearance of a conflict of interest between the DoF’s ownership of banks and the Minister’s potential role in approving resolution action affecting those banks. ### Regime for insurer failures (overview and proposed actions) - Current legal framework: - In Ireland, insurer failures come under the corporate insolvency framework and there is no insurer resolution regime as envisioned in the international standard. - The corporate insolvency framework provides three processes: Administration, Examinership, and Liquidation. - In all cases the Central Bank must petition the Court to issue an order to execute the chosen action. - Independent professionals (liquidators, examiners or administrators) appointed are subject to Court oversight and not the Central Bank. - Ongoing reforms: - The Central Bank and DoF published a joint public consultation paper proposing development of a National Resolution Framework for (re)insurers (Public Consultation on the Development of a National Resolution Framework for (re)Insurers, September 2021). - The comment period has closed; the bulk of comments were supportive; authorities will publish a feedback statement including a summary of comments in due course. - The Central Bank undertook a self-assessment of the current framework against the Key Attributes international standard using the FSB’s assessment methodology; it is comprehensive, identifies gaps in detail, and proposes an action plan. - EU-level developments: - In September 2021, the European Commission adopted a proposal for an Insurance Recovery and Resolution Directive (IRRD), comparable in many respects to the BRRD. - Authorities are engaging in Council Working Party negotiations on this file. - Timetable for adoption by the European Parliament might involve 18 months or longer; timing and scope of the IRRD is uncertain. - The IRRD proposal does not address harmonization of national insolvency frameworks. - Practical implications: - National insolvency frameworks will remain applicable to most insurer failures in practice since very few insurers are likely to be deemed systemically important. - The Central Bank and DoF should seek to remedy weaknesses in the current insolvency regime, including by means of any required legislative amendment. - Key weaknesses identified: - i) The inability of the Central Bank to petition the Court for the appointment of a liquidator to a reinsurer. - ii) The Central Bank’s lack of oversight authority regarding the actions of insolvency practitioners once appointed by the Court. - iii) The limited grounds on which the Central Bank can petition the Court for the appointment of a liquidator to certain types of insurers. - Summary recommendation (paragraph 64): - Remedy weaknesses in the current insolvency regime, including any required legislative amendment. ### Resolution planning, strategies, and impediments - Status of resolution planning: - Resolution planning in Irish banks is well advanced. - SI resolution plans are prepared by SRB IRTs with significant contributions by RES staff; plans for LSIs are prepared by RES with SRB oversight. - Resolution plans for the five domestic banks (BOI, AIB, PTSB, UBIDAC and KBCI) have been prepared since 2015/2016 (KBCI first in 2016). - 2021 SRB-led work: - Included the first assessment against the SRB’s 2020 Expectations for Banks (EfBs) framework. - First assessment under new operational guidance for liquidity and funding in resolution. - Assessment of MIS capabilities for valuation and bail-in. - Introduction of a system wide event in conducting the PIA. - Central Bank Approach to Resolution: - Published an Approach to Resolution document, most recently updated in October 2021. - Central Bank direct responsibility: - Resolution planning responsibility for eight banks; for some the resolution strategy is winding-up and liquidation. - Resolution plan components and engagement process: - A resolution plan involves a preferred resolution strategy (PRS) and a variant resolution strategy (VRS). - Engagement includes written communications from the Director of Financial Stability to the group CEO, covering: - Confirmation of core business lines and critical functions. - Description of PRS and VRS. - Analysis of resolvability and identification of key remaining impediments. - A detailed set of resolvability work priorities structured along EfBs lines. - Specification of deliverables and deadlines for the coming year. - Banks must submit an annual resolvability work plan addressing how they will achieve priorities and meet Central Bank requirements. - Banks are expected to maintain appropriately skilled and resourced teams to oversee and deliver the program. - Consideration of system-wide events: - The adoption of system-wide events in making a PIA may require reconsideration of resolution strategies for some banks; some banks with a liquidation PRS might be considered resolution candidates and require more intensive resolution planning. - MREL and bail-in readiness: - Central Bank provides a binding minimum requirement for own funds and eligible liabilities (MREL) target when communicating PRS and VRS. - Central Bank has required banks that might be subject to resolution to form a holding company that would issue MREL eligible liabilities fully subordinated to other liabilities. - Central Bank specifies MREL at consolidated group (holding company) level (externally issued MREL and equity) and at bank level (internal MREL allowing losses in the bank to be passed to the holding company at the direction of the Central Bank). - Binding targets were set on a linear basis with an initial binding requirement for January 1, 2022, and a final requirement to be met by January 1, 2024. - All LSIs that have a resolution strategy other than liquidation have met their 2022 MREL targets. - Banks have prepared and are enhancing bail-in playbooks (informed by the SRB’s Operational Guidance on Bail-in Implementation). - Separability and sale of business planning: - Where the sale of business tool is part of PRS or VRS, resolution plans must include a detailed plan to ensure separability of assets and liabilities associated with critical functions. - Banks must identify relevant assets and liabilities for transfer, operational requirements for transfer, and how non-transferred assets/liabilities will be wound up in an orderly manner, including liquidity considerations. - Banks have been required to develop transfer playbooks (informed by the SRB’s Operational Guidance for Bank on Separability for Transfer Tools). - Other resolvability components in annual work program: - Ensuring maintenance of adequate liquidity in resolution. - Maintaining operational continuity and access to financial market infrastructures during resolution. - Providing data necessary for resolution planning and implementation (including valuation data). - Ensuring ability to communicate effectively with stakeholders. - Planning in these dimensions is well advanced and next steps and expectations are documented in annual resolvability work plans. *Source: 1irlea2022005 - 57. Policies and procedures for decision-making and execution are elaborated and documented in the Central Bank NRA Handbook and in the Step Plans for the Resolution of a Failing Credit Institution.* ### 71. While not directly responsible for resolution planning in bank branches in Ireland, the ### 1irlea2022005 - 71. While not directly responsible for resolution planning in bank branches in Ireland, the ### Resolution planning and operational preparedness - The Central Bank has pursued engagement with home country resolution authorities where appropriate and reports good cooperation; this is confirmed by actions taken by the relevant authorities. - The Central Bank has not prioritized preparations to quickly operationalize a Bridge Institution or an AMV. - Planning is limited because temporary bridge institutions are credit institutions and therefore subject to an ECB license decision. - The SRB is developing operational implementation manuals for the bridge institution tool and asset separation tool (applicable to AMVs); the Central Bank intends to update internal policies and procedures once SRB guidance becomes available. - The current structure of the domestic retail market, with its limited and declining number of domestically oriented banks, might constrain the ability to execute a sale of business resolution strategy with a private sector acquirer and raises the potential that a private sector transaction would result in further concentration. - The Central Bank is of the view that the BRR Regulations override certain national competition rules; further confirmation of this interpretation should be sought from the competition authority. - The Central Bank should pursue further contingency planning to be able to quickly establish and operationalize a bridge institution and AMV. - The RES has policies and procedures to contract external experts to support resolution action: - Panels of firms identified for valuers, liquidators and temporary administrators, special managers, and general consultancy services. - The Central Bank’s legal department maintains a panel of solicitors and barristers for external legal services, including support for filing petitions with the Court. - External expert services may be drawn down on short notice in urgent circumstances by direct award or mini competition process, as determined by the particular circumstances. - Summary recommendations: - Seek the views of the competition authority on the extent to which the BRR Regulations override national competition rules. - Pursue contingency planning for use of the bridge institution and asset separation tools. ### Resolution funding: sources and constraints - Two primary sources of finance to support resolution actions: - The SRF (Single Resolution Fund). - Central Bank ELA (Emergency Liquidity Assistance). - The Irish authorities elected not to transpose the discretionary provisions of the BRRD that would have allowed for direct state support as an additional source of funding in resolution. - Single Resolution Fund (SRF): - The SRM Regulation established the SRF, owned and administered by the SRB. - Subject to certain conditions, the SRF may fund loss absorption, recapitalization, liquidity, and other costs and expenses associated with resolution measures. - Under exceptional circumstances and subject to conditions, the SRF can make contributions to the institution under resolution in lieu of the write-down or conversion of certain liabilities and/or creditors. - The SRF is the source of compensation to shareholders or creditors under any successful NCWO claims. - The Central Bank supports the SRB in administration of the SRF through invoicing and collection of funds. - The amount of SRF funding potentially available for resolution measures with respect to Irish banks was roughly €44.7 billion as of June 30, 2021. - Conditions on certain uses of the SRF may constrain effectiveness: - A prerequisite for access to the SRF for loss absorption and recapitalization support (but not liquidity support) is that shareholders and creditors have collectively first absorbed losses of at least 8 percent of total liabilities and own funds of the bank. - A second constraint is that the amount provided by the SRF is limited to five percent of the bank’s total liabilities and own funds. - These constraints may impede implementation of resolution tools where there are insufficient bail-inable liabilities to meet the 8 percent rule; depending on circumstances this could be a binding constraint in Ireland. - Despite the SRB precluding consideration of the use of the SRF in resolution plans, the Central Bank should consider how restrictions on SRF use may impede resolution action and how to remedy or mitigate those impediments. ### Emergency Liquidity Assistance (ELA) - Provision of ELA to Irish banks is at the discretion of the Central Bank. In the BU, ELA may be granted by national central banks (NCBs), subject to potential objection by the ECB. - The ECB and the NCBs have a non-binding Agreement on Emergency Liquidity Assistance. - When granting ELA, the Central Bank bears the risk of any loss. No ELA has been requested by or granted to any Irish bank since the prior FSAP. - Written policies and procedures for considering and granting ELA are in place: - By policy, to be eligible for ELA the bank must be systemically important as well as solvent. - A request for ELA is to be addressed to the Governor and accompanied by a confirmation of solvency from the bank’s Board. - Receipt of the request triggers convening of the FSC, chaired by the Governor, who is the ultimate decision-maker on granting or denying ELA. - The FSC considers and advises the Governor on systemic importance; the Central Bank’s Financial Risk Working Group (FRWG) provides inputs on collateral, haircuts, pricing, and other risk controls. - Well-developed policies and procedures exist for collateral including marketable securities and residential mortgage portfolios; procedures are in place to accept additional asset classes including commercial loans and mortgages and consumer loan portfolios. - Testing and planned work: - In 2021 the Central Bank undertook comprehensive testing of ELA arrangements including governance, decision-making, and operational procedures via scenario-based workshops and simulated FRWG and FSC meetings. - Key phases: Prudential Liquidity Assessment Workshop, two governance process tests (mock FRWG and mock FSC), and a test of ELA operational procedures. - Results were reported to the FSC, which endorsed follow-on work in 2022 including formalizing the solvency assessment framework and preparing Central Bank-wide procedures; a simulation exercise is envisioned for 2023. - Prospective solvency: - The Eurosystem Agreement provides for a prospective assessment of solvency (e.g., in cases of resolution or undergoing resolution). - The Central Bank does not currently have written policies or procedures to guide a prospective solvency determination; the 2022 work program is not intended to address prospective solvency. - The Central Bank should consider incorporating prospective solvency into its solvency assessment work program by developing policies and procedures for assessing prospective solvency of a bank entering into or undergoing resolution to determine eligibility for ELA. - Cross-jurisdictional coordination: - Given most Irish banks are subsidiaries or branches of foreign banks, cross-jurisdictional coordination of ELA may be required; for non-domestic banks the Central Bank would coordinate under the lead of the ECB or other central banks. - Given the scope of the Central Bank’s ELA work program for 2022 and 2023, engagement with the ECB or other central banks on this issue is not seen as a priority in that timeframe. - Currency and backstop: - By policy the Central Bank will only provide ELA in euro. - Domestic banks’ foreign currency funding requirements have reduced significantly; the Central Bank sees little prospect of needing to provide foreign currency ELA to them. - Two domestic banks with significant UK operations have access to the Bank of England for sterling. - The state guarantee of ELA expired in 2018; the possibility to extend the guarantee was not exercised. - The Central Bank and DoF view there is little prospect of requiring a state guarantee to backstop ELA that is less than fully secured, but particularly in the context of potential ELA to a bank in resolution they should consider additional means to mitigate the possibility of Central Bank suffering a loss, including the potential for a DoF backstop of any Central Bank exposure to loss. - Summary recommendations: - Consider how restrictions on use of the SRF may impede resolution action and how to remedy or mitigate those impediments. - Incorporate the prospective solvency of a bank in resolution into the ELA solvency assessment work program. - Consider additional means to further mitigate the possibility of the Central Bank suffering a loss arising from ELA provision, including the potential for a DoF backstop of any Central Bank exposure to loss. ### Deposit Guarantee Scheme (DGS) - The Deposit Guarantee Scheme Directive (DGSD) introduced harmonized features including: - Coverage of deposits at €100,000. - A requirement to make payouts within seven business days from January 1, 2024. - Ex ante funding through risk-based premiums. - A requirement to reach a target fund balance of at least 0.8 percent of covered deposits by July 3, 2024. - The Irish DGS is governed by the Financial Services (Deposit Guarantee Scheme) Act 2009, as amended, and the 2015 DGS Regulations which transposed the DGSD. - The DGS Regulations established a Contributory Fund maintained, governed, and operated by the Central Bank. - The DGS covers resident and non-resident depositors in banks and credit unions licensed in Ireland and their branches in the EU. - The DGS is governed by an Oversight Committee and managed by the PSSD. - Concentration and payout prospects: - Deposits covered by the DGS are concentrated in five banks; the domestic market mainly is serviced by only five banks, four of which are SIs. - The five hold roughly 84 percent of total covered deposits at June 2021. - Three of these banks are domestically owned (all with government shareholdings), while two are subsidiaries of SIs headquartered in other European jurisdictions. - In no case is the resolution strategy for these banks winding-up and liquidation, and as such no deposit payout is envisioned. - Nine other banks together hold 3 percent of covered deposits; of these, only four have a winding-up resolution strategy, and each only holds on average over time around €1 million in total covered deposits and is a subsidiary of an international banking group. - The potential for a covered deposit payout in the banking industry is remote at present. - The 221 credit unions together hold around 13 percent of covered deposits, all of which might be subject to winding-up in failure and a covered deposit payout. - Financing and targets: - The DGS is financed through ex-ante and potential extraordinary contributions from members; regular annual premiums take the form of cash contributions. - The DGS can require members to make extraordinary contributions in an amount of up to 0.5 percent of covered deposits each year (other than in exceptional circumstances which would allow up to 1 percent) if resources are insufficient; it has not done so since the prior FSAP. - As of June 30, 2021, the Contributory Fund balance was €564 million. - The Irish authorities adopted the DGSD’s minimum target Fund balance of 0.8 percent of covered deposits. - The current target balance, expected to be achieved by December 2023 based on current covered deposit levels, is projected to be roughly €1 billion. - The Fund’s assets are invested in short-term Exchequer Notes issued by the NTMA; the Central Bank serves as investment manager. - The Exchequer Notes may be redeemable prior to maturity at the NTMA’s discretion, enabling the Fund to liquidate investments in time of need. - Backstops and contingent liabilities: - The Central Bank and DoF provide a financial backstop that can increase the capacity of the Fund. - The Central Bank may provide its own monies to the Fund if the Fund and extraordinary contributions are insufficient; such amounts shall be reimbursed by the Irish Government to the Central Bank within two weeks. - The amount paid by the Irish Government must be repaid from the Fund over a period and at an interest rate determined by the Minister after consultation with the Central Bank. - There is no written policy agreed between the DoF and Central Bank addressing this contingent liability on the part of the DoF; one should be developed. - The CIRF (Credit Institutions Resolution Fund) has a balance of €56 million and a target balance of €65 million; it may be used for credit union resolution and directed transfer options subject to public interest conditions. *Italic: Source — 1irlea2022005 (PDF chapter/section).* ### 92. Covered deposit payouts are triggered when the Court issues a Winding-up Order and ### 1irlea2022005 - 92. Covered deposit payouts are triggered when the Court issues a Winding-up Order and ### Covered deposit payouts and Deposit Guarantee Scheme (DGS) Fund use - Covered deposit payouts are triggered when the Court issues a Winding-up Order and appoints a liquidator. - The liquidator’s immediate task is to furnish the DGS the information required to make a payout. - A DGS payout has been triggered three times since the prior FSAP in the three credit union failures described earlier. - The DGS is required by statute to make payouts within 10 working days, but in all three cases since the prior FSAP, payouts were made with seven working days, the eventual statutory target. - In a payout the DGS subrogates the priority creditor status of covered deposits in liquidation. - The Fund may be used to prevent the failure of a member, and in the context of winding-up proceedings, to finance the transfer of covered deposits, along with assets of the failed member, to another institution. - Both powers are subject to a provision that the costs borne by the DGS in doing so do not exceed the anticipated net cost of a payout or the available financial means within the fund. - The Central Bank does not have written policies specifically addressing whether and how these powers can be used, in part due to limitations and uncertainties as to the interpretation and application of certain elements of the DGSD and DGS Regulations. - The European Commission is currently considering clarifying legislative amendments. - The Central Bank should develop policies and procedures to guide any use of these powers. - The ability to use the Fund in an attempt to prevent the failure of an institution should be avoided. ### DGS financing of resolution actions and legal interpretation - The Fund may also be used to finance resolution actions in certain cases. - In the context of bail-in, the DGS is liable for the amount by which covered deposits would have been written down to absorb losses had covered deposits been included within the scope of a bail-in and been written down to the same extent as creditors in the same level of the creditor hierarchy. - In case resolution tools other than bail-in are employed, the DGS is liable for the amount of losses that covered depositors would have suffered in proportion to the losses suffered by creditors in the same level of the creditor hierarchy. - An interpretation allowing the DGS to finance resolution measures up to the amount it otherwise would have paid out to depositors under insolvency, providing that it is reasonably expected to recover those funds to the same degree as in liquidation, would increase resolution funding options. - The interpretation of these provisions is being reviewed at the European level. - The amount of DGS funds that may be used to provide funding in resolution is capped at the greater of the amount of losses that the DGS would have had to bear had the institution been wound-up and liquidated or an amount equal to 50 percent of the target level of the DGS. ### Operational readiness, testing, and simulations for payouts - The Central Bank tests members’ ability to produce the data required to enable a payout within seven working days. - Operational requirements setting out the technical specifications of the single customer view data format were first provided to banks in 2012 and to credit unions in 2015. - Each bank’s ability to provide the data in the required format is tested annually. - A sample of credit unions are tested each year. All credit unions have been tested at least once. - The three credit unions that have been paid out since the prior FSAP were all able to supply the data to enable a payout within seven working days. - The Central Bank has completed several simulation exercises to test its ability to manage a payout: two full end-to-end simulation events per year using full depositor data files from two banks. - The simulations test all aspects of operational procedures and identify any issues which would affect efficient pay-out in the event of a real invocation. - The results of the simulation exercises are reported to the Oversight Committee. - The DGS carries out regular exercises to ensure that it is prepared for a payout in a member institution. ### Crisis management, contingency planning, and testing (interagency and Central Bank) - The authorities have progressively adopted, tested and enhanced their crisis management arrangements since the prior FSAP. - Interagency arrangements: The FSG has adopted and oversees a written Crisis Coordination Framework (CCF) to help coordinate activities among its members in the event of systemic distress or crisis. - The CCF, first adopted in 2017, elaborates policies and procedures for mobilizing and coordinating the FSG member agencies in a potential crisis. - The CCF includes procedures for both a Readiness state and an Activation state. - The CCF has been invoked three times since inception: twice to its Readiness state during two periods of heightened potential for Brexit related disruptions, and once to its Activation state in the context of COVID-19. - When invoked to its Activation state, a formal Crisis Coordination Group (CCG) is established and the FSG agrees a formal terms of reference for the CCG. - The CCF is updated periodically, most recently in early 2022, based on learnings from invocations and simulation exercises. - Execution of the CCF is supported by the Crisis Planning Group (CPG) and the Communications Working Group (CWG). - The Central Bank has a Financial Crisis Response (FCR) Protocol adopted in 2017, serving as a model for the CCF, with Readiness and Activation states; it has been invoked five times since inception. - The FCR Protocol was most recently updated in early 2022 and requires formation of a formal FCR Task Force in its Activate state. - The FCPM in the RES is responsible for maintaining, updating, and supporting implementation of the FCR Protocol. - The FSG oversees interagency crisis management, contingency planning and testing; it is chaired by the DoF Secretary General. - The FSG’s current mandate is limited to overseeing interagency activities; the FSG's Terms of Reference should be extended to encompass an annual update and discussion of member agencies’ contingency plans and testing regimes as they apply to system bank failures and financial sector crises. - Within the Central Bank, crisis management, contingency planning, and testing is overseen by the FSC chaired by the Governor and supported by the FCPM. - The FCPM established a Crisis Preparedness Network (CPN) in 2018, with Terms of Reference last updated in early 2022; the Core division currently consists of some 20 divisional members. - The DoF has a Risk Management Framework and Procedures Manual, most recently updated in February 2021, and initiated development of a comprehensive Incident Response Protocol; progress was interrupted by Covid-19 and DoF intends to renew efforts in 2022. - DoF should ensure adequate resources are devoted to develop the protocol and put in place a program of periodic testing and updating of the protocol. - The authorities make good use of simulation and similar exercises to enhance crisis preparedness: exercises are undertaken on an interagency and individual agency level and inform enhancements to frameworks. - Since 2017 the FSG has undertaken four exercises (cyber-attack, systemic liquidity/operational problems, communications elements in cyber crisis, and invocation/escalation guidance). - Since 2017 the Central Bank has conducted six exercises (cyber-attack, liquidity/operational problems, hard-Brexit impact on funds, failure of an investment firm, disruptions to payment services, and an exercise examining ELA decision-making and operational procedures). - The Central Bank and FSG have a number of exercises planned for 2022; a program of planned Central Bank exercises is submitted annually to the FSC for endorsement when crisis arrangements are not invoked. ### Summary of recommendations - Agree a written policy between the Central Bank and the DoF addressing potential use of Central Bank funds to supplement the DGS Fund and the DoF’s contingent liability to repay those funds to the Central Bank. - Adopt policies addressing alternative uses of the DGS Fund, including avoiding its use for failure prevention. - The FSG's Terms of Reference should be extended to encompass an annual update and discussion of the member agencies’ internal contingency planning and testing regimes as they relate to systemic bank failures and financial sector crises. - The DoF should pursue development of its planned Incident Response Protocol, and once in place, initiate a program of periodic testing of the protocol. *1irlea2022005 - 92. Covered deposit payouts are triggered when the Court issues a Winding-up Order and* --- _Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1irlea2022005.pdf_