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Golden Sibanda Senior Business Reporter
GOVERNMENT should consider crafting laws that give regulatory authorities explicit powers to take full charge of the affairs of troubled banks to guarantee effective resolution, the Deposit Protection Corporation said.
According to a paper prepared by DPC on key attributes for effective resolution, the corporation said authorities should have powers to override shareholders of the institution in the best interest of the firm’s resuscitation.
“In general, the resolution (regime) should have explicit powers, which may include; power to replace senior management and directors of an institution and manage all the affairs of the institution including collecting outstanding loans or advances,” the DPC said.
The deposit protection entity said reconstruction of failed financial institutions may entail capitalisation or restructuring the troubled company’s assets or liabilities. Further, this may include closure and orderly wind-down of the whole or part of a failing firm with timely payout or transfer of insured deposits and prompt access to transaction accounts and segregated client funds.
DPC proposed that the resolution authority should have the power to establish a flexible mechanism to help preserve the critical banking functions by facilitating the acquisition by an appropriate body of the assets and the assumption of the liabilities of a failed bank.
For the purposes of ensuring finality and timely resolution of an identified weak, troubled, problem or insolvent ban, the law should empower authorities to, with or without approval, assignment or consent of director, officer, shareholder, creditor, depositor, or investor in bank concerned, establish and implement, or cause implementation of a plan of resolution, DPC said.
The statutory entity contends that the resolution regime should be comprehensive enough to cover financial institutions bank and non-bank financial institutions.
This should also cover holding companies of banks, subsidiaries significant to operations of the business insurers and financial market infrastructures that are viewed to be systematically significant or critical if it fails. The deposit insurer, DPC said, should at all time have all funding arrangements in place to ensure prompt payment to depositors with minimal use of public funds.
The contributory institutions should therefore provide primary funding through payment of premiums to meet the cost of deposit protection, as it is their members/depositors that benefit directly from deposit protection.
Currently the maximum cover level is pegged at $500 per depositor per bank, which is paid immediately when a member bank has been closed. Clients of closed banks with balances below or equal to $500 are paid the full in their account at the time of bank closure.
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