The Role of the Prudential Supervision and Financial Restructuring of Banks During Transition to Indirect Instruments of Monetary Control
IMF Working Papers, November 1, 1996
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- The Role of the Prudential Supervision and Financial Restructuring of Banks During Transition to Indirect Instruments of Monetary Control
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Bibliographic details
- Published: November 1, 1996
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451935455.001
Summary and Purpose
- Proposes a stylized sequencing of banking supervision and bank restructuring measures designed to complement and expedite the adoption of indirect instruments of monetary policy.
- Emphasizes that appropriate sequencing reflects both operational considerations and macroeconomic effects of structural measures.
- Recommends implementing initially a critical mass of reforms of prudential supervision and of financial structure of both banks and enterprises, and subsequently adapting and refining these measures in line with the evolution of markets and internal governance.
- Notes that the initial cost of bank restructuring can be offset, partly, through the budgetary effects of improved enterprise finances.
Key Findings and Analytical Points
- Sequencing should balance operational implementation feasibility with macroeconomic impacts of structural reforms.
- Early implementation should focus on attaining a critical mass of prudential supervision reforms and financial-structure changes in banks and enterprises.
- Subsequent steps involve adapting and refining measures as markets develop and internal governance evolves.
- Improved enterprise finances can generate budgetary effects that partly offset initial restructuring costs.
Policy Recommendations and Implementation Guidance
- Initiate a consolidated package of prudential supervision reforms together with financial restructuring measures for banks and enterprises to pave the way for indirect monetary instruments.
- Design reform sequencing to be flexible, allowing adaptation and refinement based on market evolution and changes in internal governance.
- Leverage budgetary effects from strengthened enterprise finances to mitigate the fiscal cost of bank restructuring.
Scope, Subjects, and Keywords
- Subject areas: Asset and liability management; Bank resolution; Bank supervision; Banking; Debt reduction; Financial crises; Financial institutions; Financial regulation and supervision; Loans.
- Keywords: Baltics; bank asset portfolio; bank capital; bank liquidation; bank portfolio; Bank resolution; bank restructuring; Bank supervision; bank-restructuring process; banking supervision; Central and Eastern Europe; Debt reduction; Eastern Europe; Global; liberalized interest rates; loan loss; loan workout; Loans; market development; monetary management; problem bank; recovery arrangement; resolution strategy; WP.