## 1sweea2023009 ## Source details **Canonical URL:** [1sweea2023009](https://www.imf.org/-/media/files/publications/cr/2023/english/1sweea2023009.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1sweea2023009.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1sweea2023009.pdf.json) --- ### Executive summary — context and high-level findings - Swedish financial safety net and crisis management rest on sound foundations and have been strengthened by legislative and policy reforms. - Key legal and regulatory changes: - Banking Recovery and Resolution Directive (BRRD) introduced pre-2016 FSAP establishing statutory regime for supervisory early intervention, crisis management and resolution. - EU Regulations on Recovery and Resolution of CCPs implemented with complementary Swedish legislation establishing early intervention, recovery, and resolution planning for CCPs. - New Riksbank Act effective January 1, 2023 provides explicit statutory basis for liquidity support to avert “a serious disruption to the financial system in Sweden.” - Progress since last FSAP partial but significant operationalisation work remains to ensure resolution powers can be used quickly and with confidence. - High capital requirements increase resilience but are not a substitute for crisis management and resolution tools and do not address non-financial risks (operational or cyber). - Historical reliance on public funds may no longer be credible given growth of financial system relative to GDP and BRRD legal constraints on use of public funds. ### Institutional roles, coordination, and operational readiness - Institutional structure: - Decentralized across four domestic agencies: Finansinspektionen (FI), Swedish National Debt Office (SNDO, Riksgälden), the Riksbank, and the Ministry of Finance (MoF); complemented by the Financial Stability Council (FSC). - FI responsibilities and recommendations: - FI is micro- and macro-prudential supervisor with statutory objective to ensure financial system stability and consumer protection. - Recommendation: formalize internal monitoring arrangements for identifying and intensifying supervision of banks at increased risk of failure (i.e., solvency analysis). - FI should develop and share a framework for bank viability analysis with SNDO and Riksbank to support SNDO resolution determinations and Riksbank lending decisions. - SNDO role and concerns: - SNDO is the national resolution authority, DGS and ICS administrator, and manager of the precautionary government support facility (PGSF). - Many statutory crisis management aspects still being operationalized; SNDO must develop operational capacity and documentation for resolution mechanics. - MoF approval requirement for SNDO resolution measures that might have “direct budgetary or systemic effect” should be limited in scope to cases requiring government budget funding only and publicly clarified to protect SNDO operational independence. - Riksbank: - Roles: monetary policy, liquidity support, payment system stability, LOLR; new Act clarifies authority to lend to avert “a serious disruption to the financial system in Sweden.” - Recommendation: publish policy framework describing lender-of-last-resort bilateral liquidity facilities’ capability for crisis management purposes, including funding in resolution; develop ex-ante operational capacity to take swift, collateralized lending decisions. ### Preparing for future bank failure — resolvability, MREL, and bank planning - SNDO resolvability expectations and timeline: - SNDO issued guidance on EBA resolvability guidelines in March 2022 and expects Swedish banks to comply with EBA guidelines by January 2024. - Assessment: banks likely have undertaken limited work to remove non-MREL barriers and will require significant management time and investment. - Eight Financial Stability Board barriers to resolvability identified: 1) insufficient loss absorbing capacity, 2) resolution valuations, 3) funding in resolution, 4) continuity in financial contracts in resolution, 5) operational continuity in resolution, 6) continuity of access to financial market infrastructure, 7) restructuring in resolution, 8) management, governance, and communications. - MREL arrangements and recommendations: - SNDO MREL policy aligns with BRRD2 and Swedish Resolution Act (2015:1016); MREL includes market confidence charge equal to the combined buffer requirement (CBR) minus the countercyclical buffer (CCyB) plus FI’s Pillar 2 guidance. - Disclosure: banks subject to SNDO MREL requirements must disclose MREL resources via Basel Pillar III disclosures 1 January 2024; non-globally systemically important institutions disclose semi-annually. - Recommendation: SNDO should refine MREL policy to specify consequences for breach, clarify MREL maturity profile and roll-over risk, and ensure monitoring of MREL maturity profiles and refinancing risk. - Recommendation: ensure banks comply with SNDO resolvability expectations by the 2024 deadline and plan SNDO resources accordingly. ### Resolution mechanics, bail-in implementation, and liquidity in resolution - Resolution decision process for a failing bank: - FI declares a bank FOLTF (failing or likely to fail) with consultation of SNDO and Riksbank. - SNDO decides liquidation or resolution; SNDO must determine no alternative measures would prevent failure before resolving. - SNDO must seek MoF approval for resolution measures that might have “direct budgetary or systemic effects.” - Available resolution tools: - transfer of shares, assets and liabilities to a private-sector purchaser (PSP), a temporary bridge bank, or an asset management company (AMC); and bail-in where shareholders and creditors are written down or converted into equity. - Bail-in mechanics and operational needs: - SNDO has a comprehensive operational framework but has not fully operationalised resolution mechanics to the level required (e.g., detailed operational playbooks and CSD actions). - December 2022: SNDO published a bail-in mechanic relying on suspension of liabilities and interim instruments; further refinement and publication of operational procedures recommended. - Annex I highlights cross-jurisdiction variations in bail-in timelines, treatment of shares, issuance of interim securities, and compliance with change-of-control requirements—SNDO should define its preferred approaches. - Liquidity in resolution: - Initial expectation is use of private resources; temporary liquidity assistance needs to be available if markets are inaccessible. - Riksbank standing facilities: overnight credit at 0.10 percent above the policy rate; supplementary standing facility accepts Swedish covered mortgage bonds at 0.75 percent above the policy rate. - Recommendation: Riksbank to publish policy framework for bilateral crisis lending, expand collateral eligibility frameworks (including loans), develop credit assessment and pricing/haircut frameworks, and establish reporting capabilities to support lending operations. ### SNDO resolution reserve, DGS, and fiscal/backstop constraints - Resolution reserve and statutory limits: - SNDO may use resolution reserve for guarantees and lending; recapitalisation via the reserve requires an 8 percent write-down of failed firm’s liabilities (corresponding to 8 percent of total assets or 20 percent of risk-weighted assets) before use. - SNDO may borrow on behalf of the resolution reserve with a credit limit of a maximum of SEK 100 billion; resolution reserve may be used to finance liquidity support in the form of guarantees to a limit of a maximum of SEK 200 billion. - SNDO levies firms for the reserve but funds are not segregated and are in a government account; SNDO depends on issuing government debt to create liquidity for the reserve function. - Reserve and limits not designed to meet simultaneous failures of more than one systemic bank; liquidity beyond limits would require parliamentary and government decisions. - Deposit Guarantee Scheme (DGS): - Coverage up to SEK 1,050,000 per depositor. - DGS fund: SEK 48 billion as of end-2021, covering around 2.5 percent of deposits; EU requirement is 0.8 percent. - Levies: average fee 0.1 percent of covered deposits; individual banks contribute between 0.05-0.2 percent. - Sweden allows DGS contribution up to 200 percent of BRRD target level (0.8 percent), i.e., 1.6 percent of total covered deposits (four times BRRD’s envisaged capacity). - Constraints: DGS contributions subject to NCWO (no creditor worse off than liquidation) principle; SNDO should document governance for using resolution valuations to inform DGS contributions. - Recommendation: SNDO should formalize process to assess resolution valuation outcomes for NCWO insolvency counterfactual losses and document governance between resolution and DGS functions. ### Central Counterparty (CCP) recovery and resolution - Legal and institutional changes: - EU CCP recovery and resolution Regulation (CCP RRR) provisions mostly applied in August 2022; Swedish complementary legislation entered into force August 2022. - SNDO appointed as CCP resolution authority; FI remains supervisor for CCPs (early intervention). - Nasdaq Clearing: - One CCP in Sweden, Nasdaq Clearing, judged systemically important in more than one jurisdiction. - Resolution planning for CCPs in Sweden is at an early stage; SNDO needs to recruit staff, establish an annual resolution planning cycle, and define clear resolvability expectations for CCPs, including consideration of financial resources for non-default loss scenarios. - Recommendation: SNDO to develop CCP resolvability arrangements, verification, and staffing to support the new role. ### Cross-border coordination, resolution colleges, and Nordea - Cross-border arrangements: - SNDO established resolution colleges in 2016 for major groups; post-2017 Nordea headquartered in Finland operates in Sweden via branch/subsidiary. - Post-Brexit, Bank of England remains active as host authority but statutory joint decision-making with SNDO no longer applies. - Nordic-Baltic MoU (2018) supports cross-border cooperation; continued close coordination needed given “branchification” and Banking Union gaps. - Recommendations: - SNDO should play active host authority role for Nordea in Sweden, defining local verification of resolvability and monitoring implementation of group resolution college actions. - Authorities should develop capacity for coordinating market-wide stress events and central bank foreign currency arrangements; Riksbank should advance work on accessing foreign currencies and test as part of crisis preparedness. ### Crisis preparedness, CSEs, staffing, and legal protections - Crisis management capacity and staffing: - SNDO crisis management resourcing increased from 10 FTEs in 2016 to 25 FTEs by end-2022 (budgeted to increase by an additional 3 staff for CCP resolution). - Comparative jurisdictions with similar financial sector size have 30 to 100 permanent resolution staff. - Recommendation: SNDO should review resourcing model to ensure permanent, not temporary, staffing and funding independence (MoF funding should be calculated as a function of industry resolution levy arrangements). - Crisis Simulation Exercises (CSEs): - FSC coordinates CSEs; yearly CSEs since 2016 with notable exercises in 2019 and 2021. - Recommendation: develop a CSE manual clarifying different CSE purposes (learning-focused vs testing-focused), tailor complexity to authorities’ operational maturity, and mitigate risk of unintended outcomes affecting cross-border cooperation. - Legal protections: - Current Tort Law provides a high level of protection for civil servants but is silent on indemnification for legal costs. - Recommendation: statute clarity that litigation will only succeed if based on criminal activity, gross negligence, or bad faith; ensure indemnities and legal aid for officials, agents, and the agencies; clarify coverage for external agents and operational arrangements to make protections effective. ### Priority FSAP recommendations (selected and with priorities) - Priority coding: H = within 1 to 2 years; M = within 2-3 years; L = within 3-5 years. - Framework for Bank Failure (Priority: H) - Establish an intensive supervisory monitoring process for identifying banks at risk of failure with clearly defined financial triggers to inform judgements (¶26) — FI. - Develop an analytical framework for providing systemic impact, solvency, and viability analysis consistently across authorities (¶28, 96) — FI/SNDO/Riksbank. - Clarify publicly and in legislation that MoF approval of SNDO resolution decisions is limited to scenarios where resolution requires funding from government budgets only (¶22,24) — MoF & SNDO. - Preparing for Future Bank Failure - Clarify aspects of MREL regulations including consequences for MREL breach, MREL maturity profile, and roll-over risk (¶48) — SNDO & FI — Priority: H. - Ensure bank resolvability expectations are clear nationally to enable banks to implement capabilities needed for orderly resolution by 2024 (¶53) — SNDO — Priority: H. - Develop capacity to improve CCP resolvability including staffing, annual planning cycle, and resolvability expectations (¶58) — SNDO — Priority: M. - Publish lender-of-last-resort bilateral liquidity facilities’ policy framework including funding in resolution (¶75-79) — Riksbank — Priority: H. - Document governance process between SNDO resolution and DGS functions for assessing resolution valuation outcomes for NCWO insolvency counterfactual losses (¶83) — SNDO — Priority: M. - Financial Crisis Preparedness - Formalize crisis management practices including developing a CSE manual and ensuring authorities are adequately resourced (¶106) — SNDO, FI, Riksbank — Priority: M. - Government should update SNDO funding arrangements so SNDO operations are calculated as a function of industry resolution levy arrangements (¶97-98) — MoF — Priority: H. *Source: 1sweea2023009 — excerpt from Sweden Financial Sector Assessment Program (FSAP) 2022.* ### EXECUTIVE SUMMARY __________________________________________________________________________ 6 ### EXECUTIVE SUMMARY ### Background and context - The Swedish financial safety net and crisis management arrangements rest on sound foundations and have been strengthened by legislative and policy reforms in the financial sector. - The Banking Recovery and Resolution Directive (BRRD) was introduced ahead of the 2016 Financial Stability Assessment Program (FSAP) and established a well-developed statutory regime for supervisory early intervention, crisis management and resolution in Sweden. - New EU Regulations on Recovery and Resolution of CCPs were implemented via complementary Swedish legislation establishing an early intervention, recovery, and resolution planning regime for CCPs. - The new Riksbank Act, which came into force in January 2023, provides an explicit statutory basis for the central bank to provide liquidity support to avert “a serious disruption to the financial system in Sweden.” - Since the last FSAP, authorities have made some progress, but much work remains to operationalise the new crisis management framework and ensure resolution powers can be used quickly and with confidence. - High capital requirements for Swedish banks increase resilience but are not a substitute for crisis management and resolution tools and do not address non-financial risks (operational or cyber). - Past use of public funds to manage financial crises may no longer be a credible domestic crisis management strategy given the growth in the size of the financial system relative to Gross Domestic Product (GDP) compared to the 1990s and the Global Financial Crisis (GFC), and the new resolution framework imposes legal constraints on the use of public funds. ### Key findings on institutional roles and operational readiness - Sweden’s financial safety net is decentralized across four domestic agencies: Finansinspektionen (FI), the Swedish National Debt Office (SNDO, Riksgälden), the Riksbank, and the Ministry of Finance (MoF); the Financial Stability Council (FSC) complements these agencies. - Many aspects of the statutory crisis management framework remain in the process of being operationalized within and among authorities and by banks. - Developing crisis management capacity within and between agencies is required to ensure credible crisis management plans, including for bank resolution. Building operational capabilities is a multi-year undertaking requiring operational plans, processes, procedures, and internal capacity for rapid, coordinated deployment. - The FI should formalize internal monitoring arrangements for identifying and intensifying supervision of banks at increased risk of failure (i.e., solvency analysis). - The FI should develop and share its framework for conducting bank viability analysis with the SNDO and the Riksbank to support SNDO’s resolution determinations and the Riksbank’s lending decisions in a crisis. Ex-ante shared methodologies improve speed of coordination without removing independent assessments. - The MoF’s role in approving SNDO resolution decision-making that might have “direct budgetary or systemic effect” should be limited to resolutions that require funding from government budgets only; this limitation should be clearly communicated in public policy. ### Preparing for future bank failure — resolvability and planning - Banks remain yet to remove known barriers to resolvability, including reporting capabilities on resolution valuation, funding in resolution, and operational services dependencies. - The SNDO and other financial authorities should develop fully operational bank-specific resolution plans requiring banks to remove all known barriers to resolvability of systemic banks under the bail-in resolution strategy (e.g., SRB’s resolvability expectations for banks). - The SNDO should refine its Minimum Requirement for Own Funds and Eligible Liabilities (MREL) policy and ensure Swedish banks comply with its recently expanded resolvability expectations by the 2024 compliance deadline. - The SNDO should develop capacity to manage central counterparty clearing house (CCPs) failure, in line with its new resolution responsibilities, by setting resolvability expectations for domestic CCPs. - Eight barriers to resolvability identified: 1) insufficient loss absorbing capacity, 2) resolution valuations, 3) funding in resolution, 4) continuity in financial contracts in resolution, 5) operational continuity in resolution, 6) continuity of access to financial market infrastructure, 7) restructuring in resolution, and 8) management, governance, and communications. ### Managing failed banks — resolution mechanics, liquidity, and deposit protection - Statutory resolution tools need to be usable, at speed and with confidence to impose losses on banks’ creditors via bail-in or transfer tools. - The SNDO should develop resolution mechanics to use resolution tools to support effective crisis response for failing systemic financial institutions and prioritize further development of procedures and mechanisms to implement recently published bail-in powers. - The Riksbank should publish a policy framework describing the central bank’s lender of last resort bilateral liquidity facilities’ capability for crisis management purposes, including funding in resolution, to improve market transparency. - The Riksbank should establish ex-ante operational capacity to take swift, decisive, and well communicated collateralized lending decisions in a crisis, reflecting additional authority coordination and decision-making requirements under the new Riksbank Act. - The SNDO should document an agreed governance process between resolution and DGS functions for assessing resolution valuation outcomes for NCWO insolvency counterfactual losses for the DGS. ### Financial crisis preparedness, coordination, and legal protections - It is essential to develop today the tools and processes for contingency planning that authorities will use in responding to a future crisis. - Authorities need to formalize internal crisis management practices and ensure resources dedicated to crisis management are commensurate with statutory functions. - Authorities should codify shared operational frameworks for informing crisis decision making, including common methodologies for assessing systemic impact, solvency, and viability assessments—clarifying expectations on sources of information and valuation methodologies. - Authorities should develop a Crisis Simulation Exercise (CSE) manual or playbook defining the different purposes of CSEs for authorities at different stages of their development. - The MoF should update the funding arrangements for the SNDO so that the SNDO’s funding is calculated as a function of the industry resolution levy arrangements, enabling greater operational independence and insulated budgeting for resolution duties. - The MoF should ensure legal protections for the authorities are sufficient so that legal challenges will only be successful if based on criminal activities, gross negligence, or bad faith. ### Table of key FSAP recommendations on Financial Safety Net and Crisis Management (selected items) - Priority coding: H = within 1 to 2 years; M = within 2-3 years; L = within 3-5 years. - Framework for Bank Failure - 1. Establish an intensive supervisory monitoring process for identifying banks at risk of failure with clearly defined financial triggers to inform judgements (¶26) — FI — Priority: H - 2. Develop an analytical framework for providing systemic impact, solvency, and viability analysis consistently across authorities (¶28, 96) — FI/SNDO/Riksbank — Priority: H - 3. Clarify in public statements and in legislation that the MoF role in approving SNDO resolution decision-making is limited to scenarios where resolution requires funding from government budgets only and is not required if SNDO’s preferred resolution strategy can be implemented in an orderly manner. (¶22,24) — MoF & SNDO — Priority: H - Preparing for Future Bank Failure - 4. Clarify certain aspects of MREL regulations incl. specifying the consequences for bank breach of MREL requirements, MREL maturity profile and roll-over risk. (¶48) — SNDO & FI — Priority: H - 5. Ensure bank resolvability expectations are sufficiently clear at a national level to enable banks to implement capabilities needed to support orderly resolution by 2024. (¶53) — SNDO — Priority: H - 6. Develop the capacity to improve the resolvability of CCPs by ensuring staffing is adequate, establishing an annual resolution planning cycle, and defining clear resolvability expectations for CCPs. (¶58) — SNDO — Priority: M - 7. Develop and publish a policy framework describing the lender of last resort bilateral liquidity facilities’ capabilities for crisis management purposes, including funding in resolution. (¶75-79) — Riksbank — Priority: H - 8. Document an agreed governance process between resolution and DGS functions of SNDO for assessing the resolution valuation outcomes for NCWO insolvency counterfactual losses for the DGS (¶83) — SNDO — Priority: M - Financial Crisis Preparedness - 9. Formalize existing crisis management practices including by developing a CSE manual to increase the authority operational readiness and adequately resourced for crisis (¶106) — SNDO, FI, Riksbank — Priority: M - 10. The Government should update the funding arrangements for the SNDO operations as resolution authority, so it is calculated as a function of the industry resolution levy arrangements (¶97-98) — MoF — Priority: H _Source: EXECUTIVE SUMMARY, Sweden Financial Sector Assessment Program (FSAP) 2022._ ### 6. FI is the micro-prudential and macro-prudential supervisory authority for the Swedish ### 6. FI is the micro-prudential and macro-prudential supervisory authority for the Swedish ### Institutional roles and legal framework - FI - Statutory objective: ensure that the financial system is stable and efficient as well as to ensure sustainability and an effective consumer protection. - Primary responsibilities: - issuing secondary regulations and guidelines on licensing and supervision of Swedish financial institutions; - monitoring and supervision of financial institutions’ compliance with prudential rules and regulations; - taking measures to prevent financial imbalances and stabilizing the credit market. - Part of: EU system of Financial Supervision (ESFS) and the European Systemic Risk Board (ESRB). - Not part of: EU Single Supervisory Mechanism (SSM) nor the ECB Supervisory Board. - Functions and related powers stipulated in the Banking and Financing Business Act and the Financial Supervisory Authority Instruction Ordinance (2009:93). - SNDO (Swedish National Debt Office) - Role: Swedish resolution authority for banks and investment banks; responsible for resolution policy, planning and implementation in a crisis. - Also responsible for: the deposit guarantee scheme (DGS), the investor compensation scheme (ICS) and the precautionary government support facility (PGSF) framework. - Not part of: EU Single Resolution Mechanism (SRM) nor the EU Single Resolution Board (SRB). - Engages in: EU resolution colleges for other EU headquartered banks and chairs EU resolution college for the Swedish bank, SEB Swedbank; bilateral resolution planning with the Bank of England for Handelsbanken. - Functions and powers stipulated in: the Resolution Act, the Deposit Guarantee Act, the PGS Act, and the National Debt Office Instructions Ordinance (2007:1447). - Riksbank - Role: monetary authority responsible for monetary policy, liquidity support to the financial system, and payment system stability. - Mandate set out in: Sveriges Riksbank Act (Riksbank Act, 1988:1385). - Part of: European System of Central Banks (ESCB) and the ESRB; not part of the Eurosystem. - Primary statutory objectives: maintain price stability, promote a safe and efficient payments system through a provision of adequate liquidity, and act as LOLR. - Also: oversees, together with FI, the financial market infrastructure; includes authority to issue banknotes and coins and operates a gross settlement system. - Ministry of Finance (MoF) - Responsible for: policy making and governance of the regulatory authorities (FI and SNDO), sets their budget and resourcing envelope as part of the annual budgeting process. - Primary responsibility: prepare pertinent legislations for government submission to parliament. - Limits: public authorities, including the parliament and the government, are not allowed to intervene in decisions by the FI, the SNDO and the Riksbank in individual cases. - Riksbank independence regulated in: Treaty of the Functioning of the European Union. - Sweden represented in: EU Economic and Financial Affairs Council (Ecofin) but not in the Eurogroup. - Coordination arrangements - Decentralized authority structure ensures operational independence but increases need for active coordination and joint crisis plans. - Financial Stability Council (FSC) - Created in 2013 by the MoF to facilitate crisis coordination. - Chaired by: the Minister responsible for financial markets. - Functions: meets regularly to discuss financial stability issues, prevention of financial imbalances, and crisis measures; designed as a forum for senior officials; not a decision-making body. - New FSC memorandum of understanding agreed in 2016 to improve cooperation, information sharing and knowledge exchange. ### Progress since the 2016 FSAP - Bank resolvability - SNDO actions: - set bail-in as the preferred resolution strategy for all bank resolution entities; - systemic banks subject to the SNDO’s MREL requirement since January 1, 2018; - March 2022: SNDO issued a guidance document on the EBA guidelines on improving resolvability to clarify interpretation and application for Swedish banks. - Crisis liquidity support arrangements - New Riksbank Act effective January 1, 2023: - clarifies role in providing liquidity support to avert “a serious disruption to the financial system in Sweden”; - provides improved statutory clarity for bilateral collateralised liquidity assistance to a temporarily illiquid and solvent firm. - International cooperation - Swedish authorities participated in a major cross-border crisis simulation exercise (CSE) organised by the Nordic-Baltic Stability Group—the first such simulation held since the introduction of the BRRD. - Financial crisis preparedness - FSC was further developed and documented roles and responsibilities of each authority. - SNDO crisis management resourcing increased from 10 full-time equivalents (FTEs) in 2016 to 25 FTEs by the end of 2022. - CCP crisis management regime - New legislation for CCP crisis management came into effect in August 2022. - The EU Regulation on recovery and resolution of CCPs and Swedish complementary legislation establish early intervention, recovery, and resolution planning for CCPs. - FI remains supervisor for CCPs (early intervention regime); SNDO appointed as resolution authority for CCPs. ### Framework for bank failure — existing arrangements and decision process - FI can exercise early intervention powers to address weaknesses in stressed banks and minimise their risk of failure. - When a bank is facing serious solvency issues (FOLTF), process: - FI declares a bank to be failing or likely to fail (FOLTF). - FI required to consult with SNDO and Riksbank before declaration. - SNDO decides whether the bank should be closed and depositors repaid (liquidation/bankruptcy) or resolved using statutory resolution powers if in the public interest. - SNDO must determine that no other actions, private or public, would prevent a failure (an “alternative measures” determination) before resolving an institution. - If SNDO decides resolution, it must also seek MoF approval to take resolution measures that might have “direct budgetary or systemic effects.” - If bank is not systemically important, liquidation or bankruptcy follows, accompanied by a DGS pay-out of eligible protected deposits. - Resolution tools available to SNDO when assuming control: - transfer of shares, assets and liabilities to: - a private-sector purchaser (PSP); - a temporary bridge bank controlled and operated by SNDO; - an asset management company (AMC). - bail-in: shareholders and creditors have claims written down or converted into equity. - Government stabilisation tools (last resort) - Allow provision of public equity support and temporary public ownership. - Historically used: nationalization of Gota Bank and Nordbanken and good-bad bank splits. - Under BRRD: designed as a backstop for extraordinary systemic crisis where other SNDO tools insufficient. - Mandatory 8 percent contribution to loss absorption by shareholders and creditors when government stabilisation tool used. - MREL liabilities must be written down to at least same extent as with other resolution tools if government stabilisation tools are used. - Backstop tool: no government bail-out of shareholders and creditors; designed for scenarios where additional public support is required after private shareholders and creditors have been wiped out. - MoF role in crisis management - Develops statutory and regulatory requirements by implementing EU rules and facilitates cross-authority coordination. - Must approve some authorities’ crisis management decisions, including deployment of precautionary support. - Government has sole gateway to the European Commission for state aid cases. ### Assessment — strengths, gaps, and risks - Strengths and effectiveness - Decentralized structure effective at ensuring operational independence. - Authorities have effective crisis management track record (1990s, GFC). - FI’s practises for identifying at-risk banks support early intervention and coordination. - Coordination and shared methodology gaps - Decentralized independence creates need for active coordination and joint authority crisis management plans (e.g., bank-specific resolution plans). - No formalised cross-authority methodologies for coordinated determinations (systemic impact, solvency, viability). - No predefined cross-authority quantitative or qualitative triggers for identifying banks at risk of entering the resolution decision making process. - Recommendation: develop shared systemic impact assessment framework and ex-ante shared methodologies to improve speed of coordination (without precluding independent assessments). - Timing for SNDO preparation - Essential that both authorities develop and agree on a mechanism for coordinating authority crisis response once FI decides it may need to make a FOLTF determination (e.g., up to a 12–24 month time horizon). - Risks to SNDO operational independence - SNDO must secure MoF approval before taking resolution actions that would have "direct budgetary or systemic effects," giving MoF a veto in certain circumstances. - This approval role may risk undermining SNDO’s operational independence and its ability to implement an orderly resolution at minimal risk to public funds. - Potential consequence: reduced willingness to impose short-term costs to improve bank resolvability for long-term benefits. - Constraints from BRRD 8 percent requirement - BRRD’s mandatory 8 percent contribution related to government stabilisation tools or use of external funds may limit flexibility in responding to certain banking crises. - Conditions for precautionary government support under BRRD: - support shall be temporary; - proportionate to the serious disruption of the financial system; - provided on market conditions (banks must be able to pay commercial terms); - recipient shall not be considered FOLTF (i.e., viable). - Provision by SNDO must also be judged by the European Commission as not state aid. - Implication: use of precautionary government support likely limited to crises involving wider funding or capital market failure. - Swedish MREL context: - Swedish banks have sufficient resources to comply with full MREL requirements. - Swedish MREL-requirements are not generally calibrated towards the 8 percent total liabilities and own funds (TLOF) threshold. - Theoretically, banks within scope of resolution and subject to MREL requirements may not be able to access external funds if they cannot meet the 8 percent threshold at the point of failure. - Banks not expected to be resolved (but rather liquidated) may not be required to meet full MREL-requirements and therefore may lack sufficient loss absorbing capacity to meet the 8 percent requirement. - Result: in a system wide crisis, Swedish banks that do not have sufficient loss absorbing capacity (e.g., MREL-resources) to meet the 8 percent requirement at the point of failure may not be able to access public funds. _International Monetary Fund — SWEDEN (excerpt)._ ### 24. The structure of the financial system is changing, and the authorities should keep ### 24. The structure of the financial system is changing, and the authorities should keep ### Changing structure and implications for crisis management - The structure of the financial system is changing, creating impacts on the effectiveness of crisis management arrangements which the authorities should keep under review to ensure they remain fit for purpose. - Authorities should consider developing tools for responding to non-financial causes of financial institution failure, including cyber-attack. - Challenges noted include executing orderly resolution actions in a 24-hour payment and settlement environment, ensuring early intervention and resolution tools apply to Fintech, including e-payment institutions and other non-bank payment service providers, and assessing the implication for CBDC for the stability of bank liabilities structure in resolution. ### Recommendations: Clarify MoF approval role for SNDO resolution decisions - The MoF’s role in approving SNDO resolution decision-making should be clarified in public statements and in legislation to make explicit that MoF approval is required only where public funds are directly at risk. - Further public policy clarification should limit the MoF approval role to resolutions that require funding from government budgets. - Expected effects: - Give the SNDO independence in taking resolution decisions. - Enable the SNDO to define necessary resources to discharge its statutory duties more independently. - Rationale: - SNDO's preferred resolution strategy for a failing systemic bank is designed to restore solvency via the bail-in of MREL instruments and without resorting to the use of public funds, including the industry-funded resolution reserve funds. - Implementation suggestion: - Clarification of the MoF’s role should be reflected in SNDO publications defining its overall approach to resolution. - Comparative practice: - The UK and the Hong Kong Monetary Authority resolution authorities have published frameworks that describe appropriate consultation with the MoF while limiting MoF's approval role to scenarios where public funds are directly at risk. ### Recommendations: FI intensified supervision and coordination with SNDO - The FI should formalize existing practices for managing banks at risk of failure into a documented and formally approved monitoring process for intensified supervision with terms of reference for including banks. - Terms of reference should specify: - Internal governance. - Quantitative and qualitative aspects for considering whether to include a bank for intensified supervisory monitoring (e.g., depletion of combined buffer requirement, breach of Pillar 2 requirements, etc.). - Supervisory information to accompany adding a bank to intensified supervision monitoring. - Prerequisites for removing a bank from intensified supervision. - The FI should use the codified monitoring framework for intensified supervision as the basis for coordinating with the SNDO. - The SNDO should confirm that the FI monitoring framework is sufficient to allow the time SNDO need to conduct required contingency planning to prepare for a resolution transaction. - The agreed monitoring framework should consider: - The complexity of the bank. - The need for coordination with foreign authorities for cross-border banks. - The SNDO’s resource constraints. - Once agreed, the FI should provide the SNDO with a regular update on any banks subject to FI intensified supervisory monitoring. ### Recommendations: SNDO internal protocols for handling sensitive FI information - To facilitate the FI sharing a regular report on banks under intensified supervisory monitoring with the SNDO, the SNDO should describe its internal protocols to classify and handle bank-specific, market-sensitive information. - Protocol components should include: - Description of SNDO’s internal information controls. - Statement that such information would be shared only on a “need to know” basis. - Identification of the individuals who can access the information (i.e., “insiders”). - Education of insiders on how to manage such sensitive information appropriately. - Ability to identify those who access the information. ### Recommendations: FI framework for bank-specific viability analysis - The FI should develop a framework for providing bank-specific viability analysis on a consistent basis to support SNDO decision-making in a crisis. - Purpose: - Provide supporting advice to SNDO’s resolution determinations. - Leverage FI’s supervisory perspective on the failing bank, credibility of recovery planning, governance, operational capabilities, and restructuring experience. - Process: - SNDO should establish a process with the FI where FI advice is requested to be linked to indicators of bank stress in FI’s intensified supervisory monitoring framework. - This linkage would allow FI time to develop advice and SNDO to consider it before needing to make a formal “alternative measures” determination. - Legal/operational note: - Use of such methodologies does not preclude authorities arriving at different conclusions nor changes the independent nature of their respective assessments as set out in legislation. ### Recommendation: EU-level exception to BRRD 8 percent loss absorption - The Government should consider pressing at an EU level for a financial-stability exception to the BRRD mandatory 8 percent contribution to loss absorption by the systemic bank’s shareholders and creditors when using the government stabilisation tool. - Design and constraints: - The exception would be designed only to be used in times of a country-wide crisis. - It would need to be subject to strict conditions and appropriate governance arrangements. - Expected benefit: - Bringing additional flexibility to managing a wide range of crises the FSAP favours. ### Central Counterparty Clearing House (CCP): recovery and resolution framework - Importance: - The GFC highlighted the importance of CCPs for safeguarding financial stability; increasing use due to clearing obligations has furthered their importance. - EU legislative development: - The European Union adopted a legislative proposal on CCP recovery and resolution in 2020. - The framework is regulated in the Regulation on Recovery and Resolution of CCPs (CCP RRR). - Most provisions of CCP RRR started to apply in EU in August 2022, and supplementary national legislation in Sweden entered into force at the same time, enabling national resolution authority to apply resolution tools to failing national CCPs to protect financial stability and taxpayers. - New CCP resolution powers: - Enable national authorities to sell CCPs and distribute losses among owners and participants. - Objectives of powers and tools: - Stabilise a CCP so it can continue critical clearing services. - Prevent contagion from spreading across the financial system. - Ensure losses are allocated fairly across CCPs and clearing members, rather than create a risk to public funds. - Swedish institutional roles: - In August 2022 new legislation appoints the SNDO to be the resolution authority for CCPs. - The FI is responsible for enhanced supervisory interventions and oversight of recovery measures for CCPs. ### Preparing for future bank failure: SNDO approach and designation - SNDO resolution planning approach: - Systemically important institutions are to be placed into resolution; non-systemically important institutions are to be wound up by bankruptcy or liquidation. - SNDO focuses resources on planning for systemically important institutions. - Annual designation process: - SNDO conducts an annual decision-making process to formally designate institutions as systemically important, set resolution strategies and MREL requirements for each bank based on designated strategy. - Nine Swedish banks are designated as systemically important: - large ones—Skandinaviska Enskilda Banken (SEB), Svenska Handelsbanken, and Swedbank; - mid-sized institutions—Landshypotek, Länsförsäkringar, SBAB, Skandiabanken, Sparbanken Skåne; - the Swedish Export Credit Corporation (SEK). - The three largest Swedish-headquartered banks (SEB, Svenska Handelsbanken, and Swedbank) have a mix of subsidiaries and branches in other European countries, mostly in the Nordic and Baltic regions. - Re-assessment at point of failure: - If the FI identifies a bank as failing or likely to fail, the SNDO will reassess whether the firm is systemically important (i.e., test whether taking the bank into resolution is in the public interest if it fails) taking into account the market context at that time. - This allows SNDO to put banks into resolution that were not designated as systemically important in the annual planning process; SNDO retains flexibility to use all resolution tools on any bank in an actual crisis. - Crisis planning for non-systemic banks: - Focused on ensuring covered deposits can be paid out quickly and efficiently under the deposit guarantee scheme. - Includes ensuring firms can provide information about their depositors and depositors’ balances at the point of failure. - SNDO regularly checks firms’ capability to provide this information. ### Plans for restoring banks at risk of failure: FI early intervention tools - FI early intervention tools include: - Power to activate a bank’s recovery plan. - Dismiss members of the bank management body. - Request a debt restructuring plan. - Appointment of a temporary administrator (particularly relevant for smaller banks where insufficient management capacity may be the main risk to recovery). - FI supervisory categorisation: - Continuous risk assessment classifies all institutions into one of four supervisory categories: category 1 (most systemically important) to 4 (least systemically important). - FI has clarified that its bank Supervisory Review and Evaluation Process (SREP) scores are the basis for assessing whether banks violating FI conditions of authorisation are likely to fail within 12 months if measures are not taken. - Internal arrangements when a bank is identified as experiencing stress: - FI conducts supervisory reviews, including reassessing capital requirements. - The bank is added to a monthly review process where supervisory interventions are discussed and actions prioritised. - If deterioration continues, a FI crisis management team is formed to intensify supervisory dialogue and prepare for possible failure. ### Bank resolvability: MREL — existing arrangements - SNDO's MREL policy objectives: - Ensure adequate levels of loss absorption and recapitalisation capacity when a bank fails. - Based on updated rules in EU Bank Recovery and Resolution Directive 2014/59/EU (BRRD2), transposed through the Swedish Resolution Act (2015:1016). - Aims to ensure that: - (i) MREL requirements ensure sufficient capacity to recapitalise a failing bank; - (ii) the application of MREL is transparent and easily understood; - (iii) MREL is risk-based (above certain “minimum levels”); - (iv) MREL is calculated and complied within the same manner for banks with similar resolution strategies. - Determination of MREL requirements: - Consistent with EU framework, SNDO MREL requirements are determined based on bank’s capital requirements (risk-weighted and non-risk-weighted). - The MREL requirement (recapitalisation amount) includes a market confidence charge (risk-weighted requirement) equal to the combined buffer requirement (CBR) minus the countercyclical buffer (CCyB) plus the FI’s Pillar 2 guidance requirement on banks. - Market confidence charge set at CBR minus CCyB is the standardised level. - Inclusion of FI’s Pillar 2 Guidance is a matter of Swedish national policy discretion within the EU BRRD framework. - The market confidence charge can be adjusted up and down to maintain market confidence and ensure bank can maintain critical functions without preventive state aid. - Disclosure requirements: - Swedish banks subject to SNDO MREL requirements will be required to disclose their MREL resources via Basel Pillar III disclosures 1 January 2024. - For non-globally systemically important institutions, disclosure shall be made semi-annually. - Disclosure requirements are set out in the European Commission Implementing Regulation (EU) 2021/763. - Purpose: enable market investors to risk manage credit exposures to Swedish bank MREL instruments and set limits on holdings to reflect risk tolerance for losses. - Assessment of implementation: - SNDO has a comprehensive MREL policy and has made good progress in ensuring bank implementation. - SNDO maintained pre-existing MREL levels when implementing BRRD 2. - Overall outcome: Swedish institutions are subject to somewhat higher (risk-weighted) requirements (both overall and subordination requirement) than institutions within the Banking Union (SRB MREL-policy). - SNDO introduced quarterly disclosure of bank MREL requirements and resources. - Legal framework imposes ownership restrictions on MREL eligible debt by defining investor eligibility criteria for non-professional retail investors; seller responsible for ensuring retail investors understand risks. - Funding and investor base: - Larger Swedish banks have complied with overall MREL requirements through issuance of senior unsecured debt. - Investor base for MREL eligible liabilities consists mostly of asset managers, insurance companies and banks. - Banks must manage maturity profile of MREL liabilities to minimise refinancing risk. ### Recommendations: MREL policy refinement and monitoring - SNDO should refine its MREL policy within statutory national discretion to specify consequences for banks breaching minimum MREL requirements. - Both SNDO and FI have powers to act when firms breach MREL requirements. - SNDO’s MREL policy states banks that breach MREL policy may be subject to dividend restrictions. - SNDO has powers under BRRD Article 17 to direct firms to take certain actions to reduce or remove impediments to resolvability. - FI has powers relating to early intervention, recovery options, and to determine whether firm is failing or likely to fail. - Recommendation: SNDO should make more explicit in MREL policy the process and consequences for firms of an MREL breach and FI should clarify how it would treat MREL breaches (e.g., as a breach of minimum financial conditions for authorisation or a basis for assessing it failing or likely to fail (FOLTF)). - Monitoring and maturity management: - SNDO and FI should continue to emphasise to banks active risk management of the maturity profile of their MREL eligible liabilities. - MREL maturity risk management will help minimise refinancing risk amid changing wholesale market conditions and wider instability. - Authorities should oversee maturity profiles of bank MREL liabilities and discuss any shortening of maturity. - Understanding level of eligible liabilities with longer-term maturity helps authorities assess a bank’s ability to withstand temporary lock-out from wholesale markets due to wider market instability. ### Bank resolvability: Other non-MREL barriers — existing arrangements and assessment - Resolvability requirements beyond MREL: - A bank under resolution must demonstrate adequate financial resources to stabilise, maintain continuity of operations, and coordinate and communicate effectively during the process. - Financial Stability Board eight barriers to resolvability: 1) insufficient loss-absorbing capacity, 2) resolution valuations, 3) funding in resolution, 4) continuity in financial contracts in resolution, 5) operational continuity in resolution, 6) continuity of access to financial market infrastructure, 7) restructuring in resolution, 8) management, governance, and communications. - Limitations of MREL: - While MREL addresses some aspects of adequate financial resources in resolution, MREL does not address: - Ability to conduct an assessment or valuation necessary to inform capital position and recapitalisation need. - Ability to meet liquidity needs in resolution. *IMF staff summary of section provided in the source content.* ### 51. The SNDO has recently begun to make progress in developing its domestic ### 1sweea2023009 - 51. The SNDO has recently begun to make progress in developing its domestic ### SNDO domestic resolvability expectations for banks - The SNDO has begun developing domestic resolvability expectations and requiring banks to remove non-MREL barriers to resolvability. - The SNDONDO has had bilateral dialogue with banks on resolvability topics including continuity of access to FMIs, operational continuity in resolution and liquidity in resolution. - In early 2022, the EBA issued guidelines to introduce an EU-common minimum standard for resolvability for systemically important banks. - In March 2022, the SNDO issued guidance on the EBA published resolvability guidelines to help Swedish banks interpret and apply the guidelines. - The SNDO resolvability guidance makes clear that Swedish banks are expected to comply with the EBA guidelines by January 2024. ### Assessment of banks' preparedness - Given the recent publication of the SNDO resolvability expectations, banks are likely to have undertaken limited work to remove non-MREL related barriers to resolvability. - Many resolvability requirements will be novel to banks; examples include: - Developing new reporting capabilities to forecast cash flows or liquidity needs in a resolution scenario. - Providing authorities with resolution valuations outputs necessary to inform the bail-in of shareholders and creditors. - Removing bank-specific barriers and developing required capabilities will demand significant management time and investment by banks to develop reporting capabilities to support orderly resolution action. ### Recommendations for SNDO engagement with banks - Ensure banks comply with resolvability expectations by the 2024 deadline. - Ensure sufficient national-level guidance on resolvability expectations to support consistent implementation. - Keep national resolvability guidelines under review to ensure sufficient specificity to support banks' resolution-planning implementation. - Establish an active schedule of regular engagements with banks to: - Receive updates on bank implementation progress. - Provide clarification of policy interpretation before banks begin significant investment programs. - Where engagement identifies issues of common concern, share clarifications consistently with other banks via publishing Q&A or facilitating workshops. - Ensure SNDO resource planning accounts for likely increased demand for bank engagement during this resolvability phase. ### Central Counterparty (CCP) resolvability — Nasdaq Clearing - There is one CCP in Sweden, Nasdaq Clearing, one of the 13 CCPs judged by the Financial Stability Board to be systemically important in more than one jurisdiction. - Nasdaq Clearing provides clearing of exchange-traded and OTC derivatives contracts and repo clearing services, and offers clearing of equities and index derivatives, fixed income and commodity derivatives on power, natural gas, emissions rights, electricity certificates, seafood, and renewable energy. - Nasdaq Clearing is authorised as a CCP and licensed to conduct clearing operations by FI under EMIR. ### Existing arrangements & assessment for CCPs - Resolution planning for CCPs in Sweden is at an early stage. - The risk that a CCP default cannot be eliminated remains despite enhanced risk management and recovery planning. - The default of a member of Nasdaq Clearing in 2018 emphasized the importance of credible resolution arrangements for systemic CCPs. - Since August 2022, the SNDO is the designated authority for CCPs responsible for CCP resolution. - The Nasdaq Clearing Crisis Management Group (CMG) was chaired by the FI with two meetings held in 2020 and 2021; as CCP resolution authority the SNDO will form a resolution college for Nasdaq Clearing and these cross-border arrangements will replace the CMG. - The SNDO’s approach to CCP resolution planning remains to be developed; discussions are ongoing on how a CCP would be resolved. - Resolution toolkit for CCPs will likely differ from banks as tools need to address the CCP’s risk model; plans must reflect the risk model to ensure continuity of critical CCP functions. ### Recommendations for CCP resolution - Put in place necessary arrangements to assess CCP resolvability and address barriers to orderly CCP failure. - Recruit SNDO staff to support its new role as CCP resolution authority. - Establish an annual resolution planning cycle. - Define clear resolvability expectations for CCPs, including considering the need for financial resources to manage a non-default loss scenario. ### Box 1 — Nasdaq Clearing AB Member Default (summary) - In 2018, a single clearing member of Nasdaq Clearing, a natural person, lost a large sum on the commodities market when the Nordic-German electricity price spread increased. - An auction for the member’s portfolio produced a winning bid that resulted in a loss of €114 million more than the collateral. - Nasdaq Clearing’s default waterfall for commodities: capital of €7 million, then a €166 million fund from non-defaulting members; this fund absorbed the loss in this case. - Additional layers of capital and a general default fund were available. - The FI’s ex-post investigation found serious deficiencies in Nasdaq Clearing’s operations and governance, insufficient requirements on clearing members' financial and operational capacity, and violations of the EMIR investment prohibition for CCPs. - FI issued a warning and an administrative fine of SEK 300 million in early 2021; Nasdaq Clearing appealed and the Administrative Court dismissed the appeal in December 2021; an appeal to the Administrative Court of Appeal is awaiting a decision. - The default’s causes included undiversified, heavily concentrated exposure in a smaller, less liquid market. - The episode reinforced the importance of sufficient market liquidity for central clearing, reliable long-term margin setting, and resolution authorities’ ability to maintain or restore continuity of critical CCP functions and address default and non-default losses. ### Managing failed banks — Implementing resolution plans - Resolution powers are designed to allow authorities to act when a bank is nonviable to minimize wider consequences for financial stability and maintain confidence. - Resolution tools include bail-in, transfer of all or part of a bank’s business to a private purchaser or bridge bank or an asset management vehicle, and as a last resort government financial stabilisation tools to inject equity or transfer the failed bank to temporary public ownership. - Bail-in involves write-down of shareholders and unsecured creditors (including holders of capital instruments) and conversion of those claims into equity as necessary to restore solvency. - For credibility, statutory resolution tools must be usable, at speed, and with confidence to impose losses on creditors via bail-in or transfer tools. - Bail-in mechanics should specify the sequential steps including: 1) identification of eligible securities within scope of the bail-in, 2) suspension of trading of relevant securities including equities, 3) suspension of, or change in, shareholder rights, 4) write down and/or cancellation of equity and/or debt, 5) issuance and trading of interim instruments, 6) redemption of interim instruments, 7) issuance of new equity, 8) lifting the suspension of trading and shareholder rights. ### Existing arrangements for bail-in in Sweden - The SNDO has established a comprehensive operational framework identifying a sequence of actions for the resolution process, including assessments, decisions, consultations, and communication required to implement a bail-in resolution. - The SNDO has not yet defined resolution mechanics to the level required to fully operationalise the tool (e.g., detailed operational processes and procedures, including specifying actions for CSDs). - In December 2022, SNDO published a bail-in mechanic that relies on the suspension of liabilities and interim instruments; this described SNDO’s current assessment of steps needed to write down shareholders and bail-in creditors. ### Recommendations on resolution mechanics - Continue to refine and publish the approach to deploying resolution tools. - Resolution mechanics should: - i) clearly define operational procedures for imposing losses on MREL holders, - ii) specify detailed procedures in operational playbooks. - Ensure the procedure for imposing losses is transparent to the market. - Continue to refine the published bail-in mechanism and develop detailed operational processes and procedures to ensure all stakeholders can take necessary supporting actions. ### Liquidity in resolution - Banks in resolution must have sufficient liquidity to meet obligations as they fall due. - Initially, banks are expected to meet liquidity needs from private resources; if insufficient or markets are inaccessible, temporary liquidity assistance is needed to ensure an orderly resolution. - Liquidity support in resolution should be secured against a wide range of eligible collateral, including the high-quality listed securities currently eligible under the Riksbank standing overnight and intraday facilities and loan collateral. - Central banks have become more transparent about crisis lending facilities; examples cited include the Bank of England, the Hong Kong Monetary Authority, and the Bank of Canada. ### Existing arrangements for liquidity provision in Sweden - The Riksbank is the provider of central bank lending facilities in Sweden and the lender of last resort, though there is currently no explicit lending framework for a bank in resolution. - Banks with membership of Riksbank’s large-value payments system, RIX, have access to a standing intraday credit facility in SEK. - The Riksbank’s standing lending facility offers overnight credit against reassuring collateral at an interest rate of 0.10 percent above the Riksbank’s policy rate. - A supplementary standing liquidity facility for monetary policy purposes introduced in mid-2022 offers overnight liquidity accepting Swedish covered mortgage bonds as collateral at an interest rate of 0.75 percent above the Riksbank’s policy rate. - Access to these facilities is automatic for the Riksbank’s monetary policy counterparties; only credit institutions that are participants in the RIX qualify as monetary policy counterparties. - The Riksbank’s overnight and intraday standing facilities currently accept high quality listed securities which are mark to market on a daily basis as collateral. - The Riksbank’s operational approach to assessing securities as eligible is set out in its Terms and Conditions for RIX and Monetary Policy Instruments Annex H4 Instructions Collateral. - Under the Riksbank Act, in “exceptional circumstances,” the Riksbank may grant credits or provide guarantees on special terms to banking institutions and Swedish companies subject to FI supervision; such lending would need to meet systemic importance criteria and demonstrate that the bank is solvent and viable. - The Riksbank has internal processes for assessing systemic importance, solvency and viability and considers advice from the FI and the SNDO important inputs. *Source: 1sweea2023009 - excerpt on resolvability, CCPs, and resolution liquidity arrangements.* ### 68. The SNDO also has the flexibility to provide guarantees and lending to support banks ### 68. The SNDO also has the flexibility to provide guarantees and lending to support banks in resolution ### SNDO resolution reserve and limits - The SNDO can provide guarantees and lending to support banks in resolution by leveraging the resolution reserve. - In extraordinary circumstances, the reserve can be used to recapitalise a bank in resolution, but such use requires a percentage of the failed firm’s liabilities (corresponding to 8 percent of total assets or 20 percent of risk-weighted assets) to have been written down. - The use of the resolution reserve is considered state aid and must be approved by the European Commission. - Where funds in the resolution reserve are insufficient, the SNDO (in its capacity as resolution authority) may borrow funds on behalf of the resolution reserve with: - a credit limit of a maximum of SEK 100 billion; and - the resolution reserve may be used to finance liquidity support in the form of guarantees to a limit of a maximum of SEK 200 billion. - Firms within the scope of resolution pay levies for the SNDO resolution reserve, but those funds are not segregated and are placed in a government account available to support the financing of public services; as a result, the SNDO is dependent on issuing government debt to create the liquidity to support the function of the resolution reserve. - The SNDO is confident that in normal market conditions it could raise necessary market funding by issuing short-term paper to meet liquidity needs in an idiosyncratic bank resolution. - The balance of the reserve and additional credit and guarantee limits are not designed to meet potential liquidity needs of more than one systemic bank in resolution at the same time; provision of liquidity support beyond this would require parliamentary and government decisions. - Footnote clarification: SNDO would not need to issue government debt when using the resolution reserve to support banks in resolution via guarantees. ### Riksbank liquidity role, capabilities, and assessment - The new Riksbank Act provides statutory basis for the Riksbank to provide general liquidity support or emergency liquidity assistance for financial stability purposes including to a firm in resolution. - The new Act requires the Riksbank to be clear on the motives, monetary or financial stability, when deploying its lending toolkit; introduces requirements to coordinate with the FI and the SNDO when acting for financial stability purposes; and makes the Riksbank’s ability to lend in foreign currencies explicit in law. - Assessment findings: - The Riksbank’s role as lender of last resort (LOLR) entails responsibility to promote stability in the financial system to support a safe and efficient payments system and effective conduct of monetary policy. - Existing standing liquidity facilities are narrow in the collateral they can accept relative to other central banks. - The SNDO’s capacity to lend to banks in stress or resolution complicates arrangements and may create market ambiguity about the Riksbank’s backstop role. - The Riksbank is best placed to lend on a bilateral basis to banks in stress or resolution at speed. - Lending against a wider range of collateral, including loans, requires central banks to develop capabilities to assess credit risk, price and define haircuts, and these frameworks must be developed well in advance of a crisis. - The new Riksbank Act increases procedural steps and governance requirements before lending decisions; the Riksbank should develop proportionate arrangements to ensure these do not impair swift, decisive, and clearly communicated lending decisions in a crisis. ### Recommendations on Riksbank roles and operational readiness - The Riksbank should be transparent to the market that it is the lender of last resort under the Swedish crisis management framework, including resolution, rather than the SNDO; the role of the SNDO’s resolution reserve in lending should not be considered a primary source of liquidity for bank crisis management purposes. - The Riksbank should put in place public policies and procedures to provide temporary collateralized bilateral lending to solvent banks in stress or resolution to enable investment in internal crisis lending and credit assessment capabilities. - The Riksbank should publish a policy framework describing the central bank’s lender-of-last-resort bilateral liquidity facilities’ capability for crisis management purposes, including funding in resolution; the framework should clarify how banks in resolution could access backstop liquidity support to meet obligations as they fall due if private sources are unavailable. - The Riksbank should establish ex-ante operational capacity to make swift, decisive, and well-communicated collateralized lending decisions in a crisis, considering additional coordination and decision-making requirements under the new Riksbank Act. - The Riksbank should ensure internal operational policies and procedures to support bilateral liquidity support against a wider range of eligible collateral, including the capability to lend against loans; it should: - specify collateral eligibility criteria; - specify information required to credit assess non-securities collateral, including loan collateral if necessary; - specify pricing and haircut frameworks for this broader range of collateral; and - specify reporting capabilities on banks needed to support these lending operations. - The expanded lending capability will require a commensurate level of investment in valuation and credit risk capabilities; these capabilities can be complemented by leveraging specialist external advisory support in a crisis. - The Riksbank should develop a framework for assessing a bank’s viability, distinct from solvency, developed ex-ante in close cooperation with FI and SNDO to prepare for future coordination in crisis management. - The FI is responsible for the FOLTF decision and will advise on the credibility of the bank’s recovery actions. - The SNDO determines a failed bank’s restructuring plan once stabilized via resolution tools and provides relevant input to the Riksbank viability assessment. - A common approach to viability assessment should be defined ex-ante to aid crisis coordination. - Consistent with LOLR best practice, the Riksbank should agree a procedure with the MoF on when government guarantees would most likely need to be sought; the Riksbank’s viability assessment framework should form the basis for agreeing with the MoF when a state guarantee is necessary to facilitate bilateral lending for financial stability purposes. - Where the Riksbank assesses bank viability as highly uncertain, it would be appropriate to request a state guarantee for such lending. - Example: if there is high execution risk on the restructuring plan of a bank recapitalised via resolution tools, it may be more appropriate for the Riksbank to conduct such lending only with a government guarantee. ### Deposit Guarantee Arrangements (DGS) - Existing arrangements and assessment: - Under Swedish implementation of the Deposit Guarantee Scheme Directive (DGSD), all institutions with a license from the FI to take deposits are automatically members of the DGS up to a level of SEK 1,050,000 (approx. EUR 100,000). - The DGS covers all private persons, as well as companies, and other legal persons; financial institutions, public and local authorities are not eligible for compensation under the DGS. - The DGS pay-out process is designed to achieve a 7-day pay-out target. - Funding and levies: - The SNDO DGS has ex-ante funding arrangements that pre-date the DGSD and is funded significantly above the EU minimum requirement. - The DGS levies an average fee of 0.1 percent of covered deposits, with risk-based levies meaning individual banks contribute between 0.05-0.2 percent. - The DGS fund is SEK 48 billion as of the end of 2021, which covers around 2.5 percent of deposits; the EU requirement is 0.8 percent. - The DGS has a minimum target level of 0.8 percent of covered deposits and no maximum target level; it therefore operates well above its minimum target level. - DGS use in resolution and limits: - The SNDO as resolution authority can rely on DGS funds to contribute to resolution costs subject to two restrictions: - As per the BRRD, SNDO DGS funds shall not be liable for an amount greater than 50 percent of the target level under DGSD; however, Sweden allows a DGS contribution up to 200 percent of the BRRD target level (0.8 percent of total covered deposits), amounting to 1.6 percent of total covered deposits (rather than BRRD’s 50 percent cap, i.e., 0.4 percent of total covered deposits). This means SNDO DGS capacity to contribute to resolution costs is four times greater than envisaged under the BRRD. - SNDO DGS contributions cannot leave the DGS worse off than it would have been under normal insolvency procedures (the "no creditor worse off than liquidation" or "NCWO" principle). - If there were a shortfall in protection for covered deposits, funds to cover this would need to come from other sources, primarily the resolution reserve. ### Recommendations on DGS valuation and DA challenges - The SNDO, as DGS and resolution authority, should formalize a process for assessing valuation analysis in resolution necessary to identify NCWO insolvency counterfactual losses for the DGS. - In December 2022, the SNDO published detailed guidance (expectations) for banks on resolution valuation capabilities, explaining SNDO’s resolution valuation procedures and capabilities banks need to support valuations in the resolution process, including the NCWO assessment (preliminary valuation 3). - The SNDO as DGS should leverage resolution valuations 2 and 3 analysis when assessing whether to release DGS funds to contribute to resolution costs; this process should be documented as part of SNDO as DGS’s internal governance arrangements. - Box on Deposit Aggregators (DAs) and operational responses: - DAs pose pay-out challenges because banks may not hold required information on ultimate eligible depositors, complicating achieving the 7-day pay-out target and sometimes necessitating cheques for foreign depositors. - The SNDO DGS has prevented DAs from holding beneficiary accounts in Swedish banks and required banks to report ultimate retail depositor information in their Single Customer View (SCV) files. - The SNDO DGS plans to set a reporting requirement on Swedish banks so that DAs provide service bank account details they maintain on behalf of end-user depositors, even if those depositors are in a foreign jurisdiction; in a pay-out scenario, the SNDO DGS can use SCV information to operationalise pay-outs via bank transfer to achieve the 7-day target and avoid cheques. ### International cooperation - Cooperation and information sharing among home and host resolution authorities, supervisors, and central banks are essential to manage cross-border bank stress or resolution, aligning on resolution strategies, resolvability assessments, and crisis implementation. - With BRRD implementation, supervisory and resolution colleges are the primary mechanism for home-host communication and coordination for banks in crisis. - The SNDO plays an important role through joint decision-making in resolution colleges where there is a subsidiary in another EEA country; host authorities contribute to bank-specific meetings on critical functions and core business lines in the host country. - Host authorities for subsidiaries in EEA countries take part in a joint-decision process with the SNDO as home resolution authority to agree on the yearly resolution plan, resolvability assessment, and set MREL requirements for the group and its subsidiaries. - Home and host EU authorities jointly agree internal MREL requirements for subsidiaries with reference to host authorities’ MREL policies and the SPE resolution strategy for the group; if joint agreement cannot be reached within four months a decision is referred to the EBA. *Source: 1sweea2023009 - 68. The SNDO also has the flexibility to provide guarantees and lending to support banks in resolution* ### 86. In 2016, the SNDO established resolution colleges for the four major Swedish banking ### 1sweea2023009 - 86. ### Cross-border resolution colleges and Nordea's structure - In 2016, the SNDO established resolution colleges for the four major Swedish banking groups (Handelsbanken, Nordea Group, Swedbank and SEB Group) for the first time. - In 2017, Nordea moved its headquarters to Finland and now carries out its operations in Sweden via a branch and a subsidiary. - In 2017, resolution plans and MREL requirements were adopted via the EU resolution college for all Swedish headquartered systemically important cross-border banks. - One of the three largest Swedish-headquartered banks (Handelsbanken) also has a subsidiary credit institution in the UK. - Post-Brexit: - There are no longer statutory joint decision making (and dispute resolution) processes between the SNDO and the Bank of England as the UK resolution authority. - The Bank of England has continued to play an active host authority role by contributing to regular bank-specific meetings to develop the group resolution plan. - The Bank of England continues to provide information about internal MREL requirements for the UK subsidiary, set with reference to the Bank of England’s MREL policy and the SPE resolution strategy for the group. - Cross-border forums have replaced the functions of the EU resolution college for Swedish bank operations in the UK. ### Nordic-Baltic cooperation and MoU - The Nordic-Baltic Stability Group (NBSG) countries have played an important role in cross-border coordination given interlinkages between their economies and financial systems. - In 2018, a new Memorandum of Understanding (MoU) was signed by the SNDO, together with the MoF, the Riksbank and the FI and their counterparts in Denmark, Estonia, Finland, Iceland, Latvia, Lithuania, and Norway to facilitate cooperation on cross-border financial stability. - The MoU focused NBSG work on information sharing and crisis preparedness, including crisis simulation exercises (CSE). - This close cooperation is necessary given that the Banking Union arrangements do not apply in four (including Sweden) out of five Nordic countries. ### Assessment: Need for closer cross-border cooperation - Continued need for close cross-border cooperation among Nordic-Baltic states and Banking Union authorities. - Increased “branchification” of some financial institutions elevates the need for coordination, particularly for crisis management, because: - National resolution authorities must implement national resolution tools based on decisions made by the SRB. - National central banks may need to provide backstop liquidity support to individual institutions. - Example: While headquartered in Finland, Nordea operations in Sweden make it the largest bank in Sweden by asset size, increasing Sweden’s dependence on the SRB and Finnish resolution authority for resolvability and orderly resolution of Nordea’s operations in Sweden. - This increases the need for home and host authorities to develop capacity to implement crisis management actions in a coordinated manner. ### Recommendations: Resolution colleges and host authority role - The Swedish authorities should focus on developing crisis management capacity via supervisory and resolution college arrangements because these groupings: - Have the right membership for implementing early intervention, resolution, and liquidity support actions. - Are supported by statutory information sharing under the BRRD. - Have prepared members for decision-making roles in a crisis with responsibilities aligned to statutory purposes and tools. - The SNDO should play a more active host authority role via the resolution college regarding Nordea’s branch and subsidiary operations in Sweden. This role could include: - Defining clear bank resolvability verification work the SNDO will conduct with respect to Nordea’s activities in Sweden. - Monitoring implementation of bank actions agreed at the resolution college as they apply to the bank’s activities in Sweden. - Ensuring branch resolution liquidity forecasting capabilities and operational continuity reporting arrangements are sufficient to support the group resolution plan. - Conducting local verification of group-wide resolvability expectations to increase confidence in bank self-reporting and improve feasibility and credibility of the resolution plan. - Closely coordinating verification and compliance monitoring with the home resolution authority (e.g., SRB) and documenting them in annual resolution college planning work programs communicated to banks. - The SNDO, the FI and the Riksbank should consider how BRRD college structures impact cross-border coordination and ensure their work programs are complementary, including: - Developing capacity to coordinate market-wide stress events and arranging central bank liquidity facilities (e.g., swap lines) to support crises involving failing banks. - The Riksbank should take forward work with fellow central banks to ensure operational arrangements for accessing foreign currencies in a financial stability crisis. - The Nordic-Baltic Stability Group should ensure such central bank arrangements are tested as part of crisis preparedness work. ### Financial crisis preparedness — Authorities’ crisis management capabilities (Existing arrangements and assessment) - Advance contingency planning requires internal processes, procedures, capabilities, and resources developed well in advance of any crisis. - Since the last FSAP, authorities have developed internal crisis management arrangements: - The Riksbank: - Made the management group and chief of staff responsible for coordination of all types of crises. - New procedures require a crisis team led by a senior representative from a relevant department. - Established a new committee to ensure coordination between internal departments on crisis preparedness and development. - The FI: - Has an established practice for identifying and managing banks experiencing stress or at risk of failure. - Leverages existing policy governance for considering crisis management questions as they arise. - The SNDO’s department for financial stability and consumer protection: - Has developed capabilities including the decision-making process for resolution and a master process for executing crisis management responsibilities. - Increased staffing to 22, budgeted to increase by an additional 3 staff to reflect SNDO’s expanded responsibilities for CCP resolution. - This is an increase from 10 staff in 2016, including two staff for policy development and international relations. - Comparative staffing observation: - Resolution authority staffing levels in jurisdictions with a financial sector of a similar proportion of GDP as Sweden range from 30 to 100 permanent staff working on resolution policy, resolution planning and resolution implementation. ### Recommendations: Crisis management capacity and SNDO resourcing - Greater operational detail is needed in crisis management frameworks: - The SNDO needs granular procedures on executing a bail-in or a transfer in resolution, including operational processes in the run-up to resolution, over the resolution weekend, and during exit from resolution action. - The FI should codify existing practices for supervising at-risk banks into an established intensified supervisory monitoring or “Watchlist” framework. - The FI should assign responsibility within its governance arrangements for developing wider crisis management capabilities, particularly when developing new supervisory policies (e.g., a framework for assessing FOLTF-sufficiently early financial triggers to inform active recovery planning and SNDO contingency planning). - Each authority needs to deepen internal crisis management arrangements and procedures so cross-authority coordination is based on specific operational needs. - Resolution authority resources should be permanent rather than temporary: - Perennial work is needed to achieve and maintain bank resolvability amid financial system change. - The SNDO should review its resourcing model to ensure work is fully resourced between now and the 2024 compliance timeline. - Resources should support regular engagements with banks to monitor implementation progress and clarify policy interpretation. - SNDO funding should be independent of the MoF: - The MoF should update funding arrangements so SNDO’s funding is calculated as a function of the industry resolution levy arrangements. - Such a mechanism would reduce exposure to MoF annual budgeting priorities and support SNDO operational independence. - It would improve SNDO flexibility to define necessary resources and impose costs of its operations on financial institutions that benefit most from financial stability. - The change should be accompanied by transparency requirements about the relationship between the levy and SNDO activities and how the levy is allocated across different types of banks. ### Inter-authority crisis coordination (Existing arrangements and assessment) - Effective authority crisis management requires clearly defined coordination arrangements with operational detail for implementing agreed crisis plans, advance notification of decisions, and agreed procedures and decision-making frameworks to support domestic and foreign coordination. - The Financial Stability Council (FSC): - Has improved collaboration and somewhat increased crisis management capacity. - Acts as the primary platform for agencies to share crisis management efforts and identify coordination points. - Has begun developing documentation to capture a shared understanding of each agency’s approaches and roles via key decision points, information needs and policy positions. - Has focused on running crisis simulation exercises (CSE) as the primary mechanism to develop cross-authority capacity rather than ex-ante presumptive crisis action paths. ### Recommendations: Inter-authority coordination and methodologies - FSC members need greater operational inter-authority crisis management capacity beyond information sharing and role mapping. - Initial focus should be on conducting consistent systemic impact assessments, solvency and viability assessments, and identifying sources of information and valuation methodologies that inform key crisis decisions. - Agreeing shared methodologies, frameworks, or data sources ex-ante minimizes time-consuming disagreements during a crisis and allows cross-authority discussions to focus on substantive questions. - Such frameworks should define collective expectations on underlying sources of information, valuation methodologies and, as far as possible within legal frameworks, common definitions of systemic impact, viability, and solvency. - Use of consistent methodologies does not preclude authorities arriving at different conclusions nor change independent decision-making responsibilities. - FSC working groups could be structured to identify needs for operational frameworks for implementing coordinated crisis actions and how to develop them, consistent with FSC MoU references to planning for joint efforts on crisis preparedness and removing obstacles to information and data sharing. ### Crisis Simulation Exercises (CSEs) - CSEs are essential tools for authorities to practice decision making in a financial crisis and should be used to learn lessons rather than as pass/fail tests. - The FSC coordinates CSE scenario design and implementation and has conducted yearly CSEs since 2016 with a focus on bank crisis management frameworks. - The 2021 exercise simulated a cyberattack on the payment system threatening financial stability. - In 2019, Swedish authorities led, with the Toronto Centre, an NBSG CSE involving about 300 participants based on a complex, cross-border bank failure scenario. - The 2019 NBSG CSE highlighted challenges in coordinating liquidity between home and host authorities for a cross-border bank in stress or resolution. - Such CSEs represent a substantial investment in developing crisis management capabilities. *Source: SWEDEN INTERNATIONAL MONETARY FUND.* ### 106. The authorities should continue to update the CSE design to evolve with the changes ### 1sweea2023009 - 106. The authorities should continue to update the CSE design to evolve with the changes ### Crisis Simulation Exercise (CSE) design and risks - The authorities should continue to update the CSE design to evolve with the changes in the financial system and increasing complexity in cross-border crisis management. - Careful CSE design will also help manage the risks of unintended outcomes from CSE undermining cross-authority or cross-border cooperation. - If CSE design is not tailored to reflect the state of development of crisis management regimes, players may derive meaning from the CSE that influences their action in a real crisis, but which would be inconsistent with the authorities' preferred crisis management strategy. - Example risk: foreign authority players might conclude that internal home authority resolution processes/procedures are incomplete or poorly understood. ### Recommendation: CSE manual and purpose differentiation - The members of the FSC should develop a CSE manual that makes clear the different purposes of CSE, depending on different degrees of progress in implementing the Swedish crisis management regime. - Objectives for the CSE manual: - Capture best practice established by Swedish authorities’ experience to date. - Recognise the important role CSE play for the Swedish authorities in developing crisis management capacity. - Make clear the different purposes of crisis simulations: teaching versus testing. - Help professionalize the role of CSE in sustaining crisis management capability while managing the risks of unintended outcomes from CSE undermining cross-authority or cross-border cooperation. - Tailor the complexity of scenarios to the state of development of the authority’s crisis operational processes, procedures, and wider arrangements. ### Box 3 — Crisis Simulation Exercises: International Good Practice (summary) - Two broad purposes for CSE: - Learning-focused simulations: - Intended to raise awareness of crisis management issues and improve knowledge of the crisis organization, plans, procedures, protocols, etc. - Targeted at discussing and gaming aspects of the crisis management framework and reactions of those responsible for implementing that aspect and related decision-makers. - Often used to develop capabilities and harmonize understanding of decision-maker reaction function in the defined scenario. - Testing-focused simulations: - Designed to probe individuals, teams, and organizational preparedness and identify areas of strength or vulnerability. - Involve more elements of surprise (e.g., akin to a fire drill), with the scenario generally unknown to the players in advance. - Shared design parameters (players involved, level of realism, openness of scenario, context and setting, player role, timing, etc.) may be arranged differently for learning vs testing. - Implementation considerations: - Testing-based CSE typically requires crisis processes, protocols and capabilities (e.g., systemic impact assessment frameworks, established valuation approaches to inform solvency and viability assessments, operational liquidity facilities, etc.) to largely be complete and known to be functioning by those involved. - Learning-based CSE can target development of specific team/organization crisis capabilities in isolation, often through discussion, while other aspects of the approach remain under development. - Constraints and guidance: - If the crisis management framework remains relatively novel for many players (e.g., resolution regime tools have yet to be fully operationalised), complexity of CSE scenarios should be constrained to avoid overwhelming players. - Until a crisis management framework is fully operational, learning-focused CSE is typically more appropriate. - Failure to recognise the appropriate CSE type risks incurring the high cost of CSE development, execution, and evaluation without deriving the benefits and may lead to players deriving meaning inconsistent with the authorities' preferred strategy. - Authorities should generally not attempt CSE involving external parties before the underlying crisis management framework is fully operationalized and understood by their own staff to avoid negatively impacting external parties’ confidence. - If a cross-border CSE is essential before the precondition is met, adopt a more learning-focused approach and focus on an element of the domestic crisis management framework that is well understood by both domestic and foreign authorities. ### D. Legal Protections — Existing arrangements and assessment - Rationale: - Crisis management authorities should be protected from unfounded litigation. - Legal liability in financial crisis management may occur when: - (i) the supervisory authority fails to take any action notwithstanding the knowledge of serious problems in the bank, - (ii) measures were inadequate in response to the problems, - (iii) a shareholder of a bank challenges the appointment of a provisional administrator, or - (iv) a resolution action which interferes with the private property risks in the public interest. - Given distributional implications and incentives to challenge resolution actions, liability should accrue only in the event of gross negligence or wilful misconduct on the part of the supervisory agency, central bank and resolution agency, or its employees. - Current Swedish framework: - Sweden’s Tort Law provides a high level of protection for civil servants. - The Tort Law is silent on indemnification for legal costs; none of the agencies has pertinent internal rules, policies, and procedures in place. ### D. Legal Protections — Recommendations - Strengthen legal protection of financial agencies’ officials, staff, and agents: - Provide statutory clarity that a case would have no chance of success unless based on criminal activity, gross negligence, or bad faith. - Cover agencies, their current and former officials, staff, and agents. - Ensure employees facing personal action have access to resources for defending proceedings, including a full indemnity for legal costs. - Clarify whether the Tort Law extends protection to: - (1) agents (such as lawyers, accountants, auditors, and IT experts) whom agencies will engage, particularly for resolution measures, and - (2) the agencies themselves. - Establish operational arrangements to make legal protection effective, covering issues such as: - the choice and (timing of) payment of legal representation, - protection against self-incrimination during internal investigations also to build a case to defend the agencies, - liability and legal aid insurance covering realistic monetary amounts considering the high financial stakes at play in resolution cases. ### Annex I — Bail-in mechanics: differences in approaches (key considerations) - Important variations between jurisdictions’ approaches to bail-in mechanics; authorities should be clear on approach. Most material differences to consider: - Valuation timelines: - Some approaches assume final valuations can be concluded in a matter of days. - Others assume a lengthier valuation process (e.g., 3+ months) is required to arrive at valuation conclusions necessary to inform the final bail-in terms of the resolution. - Treatment of resolved bank shares: - Some authorities assume all shares in the resolved bank are cancelled, and new shares are issued to be distributed to the formed creditors as compensation. - Alternatively, other authorities assume existing shares are only suspended until the final terms of the bail-in can be informed by the completed resolution valuation. - Issuance of new shares: - Some authorities propose requiring the common securities depositary to create new shares on the issuance of the resolution order by the resolution authority; the stock exchange initiates the listing process and a global note is necessary for technical creation at the central securities depository; the bank in resolution is responsible for creating the global note; new shares/global notes allocated by the administrator to former bondholders affected by the bail-in. - Other authorities do not require issuance of new shares under its certificate of entitlement (CE) mechanic. - Some authorities envisage cancelling all shares and requiring issuance of new shares for allocation to former creditors in exchange for claim rights; under this approach, the statutory resolution order would be how the new shares would be listed and for amending the articles of association. - Issuance of interim securities: - Some authorities assume interim securities (i.e., CEs or claim rights) are issued to resolved bank creditors and can be traded between the resolution action and the final valuation informing the exchange process. - Example: in the UK, issuance of CEs to former creditors does not involve acceptance of an offer by those creditors; therefore CEs do not need to comply with the Listing Authority or EU Prospectus Directive requirements to publish a prospectus. This allows CEs to be distributed on the Monday morning after the resolution weekend providing clarity to the market on economic entitlement before valuation is completed. - Compliance with change in control/other regulatory requirements: - Some mechanics explicitly address how compliance with supervisory change in control and other regulatory requirements (e.g., the FI’s role in supervising takeover bids, enforcing compliance with the Takeovers Act, and approving offer documents and prospectuses) can be met. - Others are less explicit about ensuring new owners are fit and proper, given challenges identifying holders of interim securities or new shares in advance of distribution or exchange. - Operational recommendation: - In refining published bail-in mechanics over time, the SNDO should develop detailed operational processes and procedures to ensure all stakeholders involved can take the necessary supporting actions. *Source: 1sweea2023009 - 106. The authorities should continue to update the CSE design to evolve with the changes (IMF PDF).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1sweea2023009.pdf_