The Agency for Regulation and Development of the Financial Market (ARDFM) and the National Bank have developed a joint draft of bank crisis resolution rules. As reported by LS, the document proposes obliging market participants to form a reserve to rescue large financial institutions.
What the draft proposes
According to LS's summary, banks will transfer money in tenge to a single treasury account to cover the losses of a troubled systemically important bank.
The maximum fee is set at no more than 0.2% of the total liabilities. Both local banks and branches of non-resident banks will pay the contributions. The total amount required to cover the losses will be distributed among financial institutions in proportion to the size of their liabilities.
The transfer deadlines are strict: contributions must be sent within 30 calendar days after receiving a notification from the authorized body. In certain cases, a bank may receive a deferral, but for a maximum of six months. If the required amount exceeds the annual limit, payments are stretched over several years until fully repaid. If the amount is less than the limit, the fee is collected as a lump sum.
Part of a broader package
Mandatory contributions are just one element of the resolution mechanism. In parallel, a separate resolution approves the rules under which the state or a national managing holding company can buy shares of a troubled bank.
The regulators are also introducing the concept of a "stabilization bank." This is a temporarily created structure to which the assets and liabilities of a sinking financial institution are transferred to protect depositors and prepare for a sale to a new investor. Key decisions on state participation in the rescue of a specific bank will be made by the Financial Stability Board.
Why it matters
Judging by the logic of the draft described by LS, regulators are building a mechanism of collective responsibility, where the financial sector itself pays for part of the cost of potential crises. The more liabilities a bank has to depositors and creditors, the higher the absolute amount of its payment will be.
The new fee will directly link the operating expenses of all market participants to the stability of the largest players, forcing banks to factor these risks into their financial models.
What's next
The document is currently in draft status. If adopted, it will come into force ten calendar days after the day of its first official publication. Regulators also have yet to establish the specific values of the financial and economic signs of deteriorating stability that will trigger the entire mechanism.