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07 January 2010

NVB's reaction to the Basel proposals on crisis management – more focus on early intervention mechanism needed

The Netherlands Bankers’ Association believes closer and better cooperation between supervisors and other national authorities is essential, both on a national and international level, as it will raise awareness of the supervisors involved with supervision on cross-border banks.

The design and implementation of banking resolution systems is an issue which is very important to the member base of The Netherlands Bankers’ Association (NVB). This consists of both local and international banks (including foreign bank branches) active in the Dutch market. NVB therefore welcomes the report of the Basel Committee in that respect and supports setting up arrangements for banking resolution.

NVB notes that a banking resolution framework is a very complex framework to set up, given differences in supervisory tools, differences in national legislation and a lack of cooperation between supervisors. Therefore, enough time should be taken to think through every aspect thoroughly.
NVB emphasizes furthermore that banking resolution is just one element in the total framework of crisis management. The NVB feels that far more attention should be given to early intervention mechanisms that prevent a (cross-border) bank from failing. In its view, the supervisors and national authorities already have an array of tools at their disposal to execute early interventions. Practical experience has shown that these tools are – in our view – not used sufficiently. The tools that are available to supervisors should also be harmonized on an international level.
Another essential element is closer and better cooperation between supervisors and other national authorities, both on a national and international level. Better cooperation raises awareness of the supervisors involved with supervision on cross-border banks. Closer cooperation will then lead to a better, more holistic view of a cross border bank.
This also contributes to a greater understanding of the structure and business model of the bank, thereby reducing the complexity perceived by supervisors and national authorities. In that respect, NVB feels that contingency planning can be a useful tool. This does not mean that banks should produce ‘living wills’. More research needs to be done in this area and a clear view on the idea of contingency planning / living wills needs to be agreed upon before taking the development forward. For instance, no clear definition exits at present, which only creates confusion.
The last point of great importance with respect to cross-border banking resolution is that a sole focus on ‘systemic’ banks must be prevented. The crisis has clearly shown that this leads to instability and to a narrow focus on the big cross-border banks. Small (national) niche banks can in practice have a systemic impact on the financial system.
NVB provides suggestions for the following issues:
1.    Effective national resolution powers
2.    Frameworks for a coordinated resolution of financial groups
3.    Convergence of national resolution measures
4.    Cross-border effects of national resolution measures
5.    Reduction of complexity and interconnectedness of group structures and operations
6.    Planning in advance for orderly resolution
7.    Cross-border cooperation and information sharing
8.    Strengthening risk mitigation mechanisms
9.    Transfer of contractual relationships
10. Exit strategies and market discipline


Documents associated with this article

NVB BRIEF_1054[1].pdf

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