The High Level Seminar on Bail-in and Deposit Insurance System Interaction, jointly organized by the International Association of Deposit Insurers (IADI), the Polish Bank Guarantee Fund (BFG) and Narodowy Bank Polski (NBP), was held on 25-26 June 2014 in Warsaw. The seminar, part of a research project run by IADI under the leadership of BFG, was devoted to the instrument of debt write-down and conversion (also known as bail-in), which is one of a number of tools that can be deployed in the orderly liquidation of banks (also known as resolution). The crucial importance of bail-in for the efficiency and credibility of a crisis management framework, in particular in relation to large, complex financial institutions (SIFIs), has been repeatedly emphasized by such institutions as the Financial Stability Board (FSB), which represents the most developed countries associated in the G-20 Group.
The seminar was opened by Mr. Jerzy Pruski, President and Chair of the Executive Council of the International Association of Deposit Insurers and President of the Management Board of the Bank Guarantee Fund. Mr. Pruski emphasized that the bail-in tool is a tentative answer to the gaps in the crisis management framework that were exposed during the latest financial crisis, especially in relation to large, complex, cross-border institutions. Although it seems that similar results can be achieved by other resolution tools used thus far, the application of the bail-in tool, which has not been widely tested in practice, raises some complex issues for resolution authorities and deposit insurers. Identifying and understanding the essential features, results and risks relating to debt write-down and conversion are of crucial importance in order to meet the challenge. Therefore IADI considers research on the implications of the bail-in tool to be imperative and BFG has taken charge of this project.
Thereafter Mr. Mateusz Szczurek, the Polish Minister of Finance, and Mr. Olgierd Dziekoński, Secretary of State in the Chancellery of the President of the Republic of Poland, discussed key issues relating to financial stability. They elaborated on the negative repercussions of the financial crisis that began in 2007 and emphasized an urgent need to strengthen the financial safety net by implementing a framework for bank resolution.
The program of the event consisted of five sessions:
- Crisis management options for failing G/D-SIFIs,
- Bail-in threats in light of existing experience,
- Basic challenges for DISs in case of bail-in application,
- Bail-in resolution framework,
- Safeguards to limit the risk of bail-in for DISs.
The seminar brought together experts from the FSB, the International Monetary Fund, the World Bank, the European Commission, the European Central Bank, the European Banking Authority, the Bank of England, the Bank of Slovenia as well as numerous deposit insurance agencies.
Mr. Jerzy Pruski, President of the Management Board of the Bank Guarantee Fund, highlighted in his closing remarks that the number of questions put to the panelists demonstrates that there is a need for further analysis and discussion on the numerous issues concerning bail-in that were referred to during the seminar. In his opinion, an essential matter at the heart of the discussion is to determine who should bear losses in case of a bank resolution that entails write-down and conversion of debt instruments. An exceptionally lively exchange of views during the seminar confirmed the significance for deposit insurers of the issues under discussion and emphasized the necessity for intensive analytical work within the research project. The results of these analyses will constitute valuable support for IADI in discussions conducted within the Financial Stability Board and other international institutions.
