The Minister for Finance, Mr. Michael Noonan, TD, has signed into law regulations providing for contributions by authorised credit institutions to a Resolution Fund pursuant to Section 15 of the Central Bank and Credit Institutions (Resolution) Act 2011.
The Central Bank and Credit Institutions (Resolution) Act 2011 established the Resolution Fund to provide a source of funding for the resolution of financial instability in, or an imminent serious threat to the financial stability of, an authorised credit institution.
The Minister noted that the Programme for Government had included commitments to introduce a comprehensive special resolution regime for banks and a bank levy. The Government has fulfilled these commitments through the Central Bank and Credit Institutions (Resolution) Act and the Resolution Fund established under it. The levy contributions by credit institutions under the Regulations signed by the Minster will feed into the Resolution Fund. The overall objective is to minimise taxpayers’ exposure to future financial sector difficulties.
The target level of funding for the Resolution Fund is €100 mn and institutions will contribute €25 million per annum until this €100 mn target is achieved. The Minister has already contributed €250 million to the fund and the legislation provides that he is entitled to be reimbursed for this contribution. This initial €250 million contribution from the Minister is intended mainly to fund the costs of resolving credit unions in difficulty. Contributions from authorised institutions will be used in the first instance to reimburse the Minister’s €250 million contribution and the levy on authorised credit institutions will continue until a fund of €100mn is attained.
3 October, 2012
Notes to Editors
The Central Bank and Credit Institutions (Resolution) Act 2011 sets out the circumstances in which the resolution tools available to the Central Bank of Ireland can be activated subject to having consulted the Minister. The key tools available to the Central Bank include:
· Transfer Order: Through the mechanism of an order made by the High Court, to in certain prescribed circumstances, transfer some or all of a relevant institution’s assets and liabilities to another institution.
· Special Management Order: The Central Bank of Ireland is empowered, through the mechanism of an order made by the High Court, in certain prescribed circumstances, to appoint a special manager to an institution. The purpose of the special manager is to manage the business of an institution to facilitate the development of recovery and resolution plans or to wind down the institution with a view to liquidation.
· Allowing for the establishment of a "Bridge Bank" to hold, on a temporary basis, some or all of the assets or liabilities of a financial institution which has financial difficulties with a view to their transfer to another institution.
· A modified liquidation process in respect of financial institutions in difficulty where the liquidator will be mandated with two objectives, firstly and primarily to work with the Central Bank to ensure that depositors covered by the Deposit Protection Scheme receive a payout or have their deposits transferred to another institution, and secondly to achieve the best results for the institution’s creditors as a whole.
· The development of Recovery and Resolution Plans in relation to financial institutions in order to facilitate the Central Bank of Ireland and the individual institutions’ preparations to deal with potential instances of financial difficulties for the institutions concerned.
· The Act includes established a Resolution Fund designed to minimise taxpayers’ exposure to future financial sector difficulties. The Resolution Fund will primarily be made up of contributions from credit institutions.