This issue, “We Need to Talk About IFRS 9: Regulatory Overlays to ECL Provisioning in the Time of COVID-19” authored by Glenn Tasky, SEACEN’s Director of Financial Stability and Supervision / Payment and Settlement Systems, analyses the difficulties of applying the expected credit loss methodology during a pandemic. The Policy Analysis builds the case that IFRS 9’s impairment accounting principle is not fit for purpose in the present crisis period, but with some simple regulatory overlays that do not contradict the standard, regulatory authorities (central banks and stand-alone banking supervision authorities) can promote greater ease and consistency in applying the standard to determine necessary loan-loss allowances. In turn, more consistency across banks in the same jurisdiction, and more consistency across jurisdictions, can lead to better data and perhaps more effective supervisory judgment in tackling the expected increase in non-performing loans as a result of the pandemic.
This issue, “Crisis Preparedness in the Age of COVID-19: A Primer” authored by Glenn Tasky, SEACEN’s Director of Financial Stability and Supervision / Payment and Settlement Systems, sets forth the complex issues that regulatory authorities (central banks, stand-alone regulatory authorities, and deposit insurance agencies, collectively RAs) may consider tackling promptly in dealing with the possibly severe effects of the COVID-19 economic shutdowns and the likelihood of significant economic slowdown or recessions on the financial sector. Many RAs have taken steps to allow their banks to draw down capital and liquidity buffers, and some have softened provisioning requirements or the regulatory capital impact of higher provisions, but this paper goes further and outlines some additional actions that RAs may consider if they deem it appropriate under such systemic stress.
This paper is the second in a series of publications titled SEACEN Policy Analysis. With this paper, SEACEN is renaming the series formerly known as SEACEN Staff Policy Analysis, to take into account that papers in this series may be authored by SEACEN staff, by SEACEN staff in cooperation with outside experts, or by outside experts only.
As before, the series is intended to provide in-depth analysis of topical policy issues in macroeconomics, monetary policy, financial stability, and payments systems, with a particular emphasis on contextualizing these issues to the SEACEN stakeholder space. The papers look at the contours of cutting-edge issues that arise with ever-changing macroeconomicenvironments and technological possibilities and focus more on policy options than on technical analysis such as econometric modeling.
The current paper, “Bail-in: a primer” attempts to provide answers to some complex and unresolved issues in dealing with problem banks. For decades, governments have often “bailed out” troubled banks, while their investors have not borne the brunt of the losses.
During and after the Great Financial Crisis, however, the outlays by governments to shore nd proved controversial, and even politically unacceptable, in many jurisdictions. By “bailing in”, investors across the hierarchy of the liability structure of these failing banks can be forced to take losses, lowering the demands on the public purse while addressing moral hazard.
However, bail-in as a resolution tool has not been used very often, and the conditions under which it has been used do not seem to follow a consistent pattern. As such, bail-in can be considered an emerging and experimental tool in the toolbox of regulatory authorities around the world, although it is yet to be proven as a reliable tool for resolution. In this issue, Glenn Tasky, SEACEN’s Director of Financial Stability and Supervision / Payment and Settlement Systems, suggests some solutions to the ambiguities and implementation issues surrounding the use of the bail-in tool. This paper may be particularly useful for those jurisdictions that are still developing their bank resolution frameworks, but it can also be a guide for those authorities who may already have the tool at their disposal and need some guidance on how to actually implement it. A future issue in this series will look at how bail-in has actually been used in the SEACEN stakeholder space, and possible obstacles to it being used more frequently.
We wish to introduce the inaugural issue of SEACEN Staff Policy Analysis, a new publication of the SEACEN Centre intended to provide in-depth analysis of topical policy issues in macroeconomics, monetary policy, financial stability, and payment systems with emphasis on contextualising these issues to the SEACEN economies. This inaugural issue takes a look at the relationship between credit cycles and the countercyclical capital buffer (CCB) proposed under Basel III.
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