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NBU and DGF in the Crossroad of the Reform . Marius Vismantas Country Sector Coordinator, Financial and Private Sector Development Ukraine, Belarus & Moldova The views expressed in this presentation do not constitute an official position of the World Bank Group on the issues discussed.

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nbu and dgf in the crossroad of the reform

NBU and DGF in the Crossroad of the Reform

Marius Vismantas

Country Sector Coordinator, Financial and Private Sector Development

Ukraine, Belarus & Moldova

The views expressed in this presentation do not constitute an official position of the World Bank Group on the issues discussed

decision making today
Decision making today
  • Supervision
    • Supervises
    • Becomes alert
    • Issues warnings
    • Develops corrective actions
    • Calls a bank a troubled bank
    • Introduces TA
    • Develops rehab/resolution plan
    • Decides on liquidation
    • Liquidates
  • DGF

Pays out deposits

decision making after
Decision making after
  • Supervision
    • Supervises
    • Becomes alert
    • Issues warnings
    • Develops corrective actions
    • Calls a bank a troubled bank
  • DGF
    • Introduces “TA”
    • Develops rehab/resolution plan
    • Decides on liquidation
    • Liquidates
    • Pays out deposits
separation of troubled banks from regular supervision
Separation of troubled banks from regular supervision
  • In banks, conventional wisdom suggests separating problem assets from the rest of the bank
    • Keeps management focused on core banking
    • Allows more efficient NPL resolution – limited funding and skills channeled to a specific purpose
  • Similarly, troubled bank resolution should be separated from regular supervision
    • Keeps the regulator focused on core supervision
    • Key is (1) calling a bank a troubled bank and (2) determining least-cost resolution strategy – two crucial judgments which would be separated
    • Allows more efficient troubled bank resolution
    • Strengthens both institutions rather than weakens them individually - the system is strengthened as a consequence
nbu and dgf cooperation today
NBU and DGF Cooperation - TODAY
  • Information sharing – but mostly of past events/decisions; little added by DGF to the supervisory process
  • Contingency credit line NBU DGF
  • NBU overextending, loaded with all judgmental decisions
  • DGF purely and narrowly mechanical
nbu and dgf cooperation future
NBU and DGF Cooperation - FUTURE
  • DGF performs judgmental role in resolution
    • Relief to the NBU from overextension in judgment
    • Uses specialized cost tests
    • Takes decisions on spending money - not only for deposit payout
    • Accountable for decisions and funds spent
  • NBU maintains judgmental role in supervision
    • Still pulls the plug on a troubled bank – key to ultimate success
  • Information sharing – enhanced significantly
  • Joint teams on borderline banks
nbu and dgf cooperation future1
NBU and DGF Cooperation - FUTURE
  • NBU recognition of the DGF as an equal highly professional partner
    • mutual strength
    • interdependence of success
    • benefit to the system
  • Needless to say - full professional independence of both institutions is sin qua non for the success of the new institutional framework
nbu and dgf mutual interest
NBU and DGF – Mutual Interest
  • Both institutions collectively responsible for success of resolving troubled banks
  • NBU
    • Motivated to see DGF succeed – as such success would vindicate NBU supervision and decision making on troubled banks
  • DGF
    • motivated to see NBU succeed in supervision and calling troubled banks at a right time – as such success would mean less work to the DGF, or better outcomes in resolution
overarching objective
Overarching objective

Protect depositors

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Protect taxpayers