Regulating, Supervising, and Handling Distress in Public Banks

Departmental Papers, May 2, 2022

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Regulating, Supervising, and Handling Distress in Public Banks

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Bibliographic details

• Authors: Mark Adams, Hanife Yesim Aydin, Hee Kyong Chon, Anastasiia Morozova, Ebru S Iskender
• Published: May 2, 2022
• Series: Departmental Papers
• DOI: https://doi.org/10.5089/9781616359041.087

Summary

• This paper highlights the distinct challenges and suggests practical solutions to the effective regulation, supervision, and crisis management for public banks.
• It acknowledges that public banks exist for variety of reasons (legacy, ideology, public policy) and will likely remain a feature of financial systems in a number of countries.
• It provides advice on how to best incorporate public banks in the regulatory paradigm commensurate with their risk profiles.

Key findings and themes

• Public banks have distinct risk profiles stemming from their ownership, mandates, and potential privileged access to public resources.
• Effective oversight requires tailoring regulation and supervision to the specific risks and functions of public banks.
• Crisis management and resolution frameworks need adjustments to account for public policy objectives and potential fiscal implications of distress in public banks.
• Corporate governance arrangements, including arm's-length governance structures, are central to aligning public banks' operations with financial stability and policy goals.
• The paper addresses intersections with topics including: Bank resolution framework; Commercial banks; Corporate governance; Financial crises; Financial institutions; Financial regulation and supervision; Public enterprises; State-owned banks.

Policy recommendations and practical solutions

• Incorporate public banks into regulatory and supervisory frameworks commensurate with their risk profiles.
• Strengthen arm's-length governance structures to reduce political interference and improve accountability.
• Adapt bank resolution frameworks to manage distress in public banks while balancing public policy objectives and fiscal risks.
• Enhance supervision of privileged access and policy lending practices to mitigate systemic and fiscal risks.
• Clarify roles of State supervision and corporate governance to improve transparency and risk management in public banks.

Content in this bundle

• Regulating, Supervising, and Handling Distress in Public Banks
  • Regulating, Supervising, and Handling Distress in Public Banks (Markdown version)
  • Regulating, Supervising, and Handling Distress in Public Banks (PDF)