Consultation Paper - Proposals for a Special Resolution Regime for Deposit-Taking Institutions in Bermuda (September 2011)

Summary

This is a Bermuda Monetary Authority consultation paper setting out proposals for a new Special Resolution Regime (SRR) to allow prompt and effective resolution of failing deposit-taking institutions in Bermuda, outside the constraints of general corporate insolvency law. It responds to an IMF recommendation and reflects Basel Committee standards. The paper is a proposal only; no rules have yet been made.

• Scope: Applies to deposit-taking institutions (banks) licensed under the Banks and Deposit Companies Act 1999; credit unions are expressly excluded.
• Triggers: The SRR could be triggered by the BMA, after consultation with the Minister of Finance, where an institution fails or is likely to fail the Minimum Criteria for Licensing on liquidity/capital and no other action is likely to fix this, plus a public-interest condition (financial stability threat, prior government financial assistance, or need to protect depositors).
• Stabilisation tools: Three proposed tools: transfer to a Private Sector Purchaser, transfer to a temporary Government-owned Bridge Bank, or Temporary Public Ownership.
• Creditor safeguards: Proposed compensation orders (made by the Minister) and protections for set-off/netting arrangements, secured claims and structured finance arrangements in the event of partial property transfers.
• Insolvency and administration procedures: Proposes a Bank Insolvency Procedure (whole-bank liquidation, coordinated with the deposit insurance company) and a Bank Administration Procedure (for a residual bank after a partial transfer), plus a revised priority ranking of creditors placing insured depositors ahead of general unsecured creditors.

The BMA invited public comments on these proposals; no legislation or binding requirements have yet resulted from this paper as published.

Key obligations

• Interested parties wishing to respond to the consultation must submit comments to policy@bma.bm no later than 30 November 2011.

Applies to

deposit-taking institutions (banks) licensed under the Banks and Deposit Companies Act 1999

Deadlines

• 30 November 2011: Deadline for public and interested parties to submit comments on the consultation paper's proposals.