New legislation aimed at helping failing credit institutions and stabilising the financial system was launched yesterday, May 24, by Minister for Finance, Michael Noonan. The Central Bank and Credit Institutions Bill sets out extra powers for the Central Bank of Ireland to help it resolve crises in a prompt and effective manner.
The Central Bank will now have the option to use certain tools in order to monitor and resolve the financial sector which includes building societies and credit unions. The key tools available to the Central Bank will include:
Transfer Order: Transfer some or all of a relevant institution’s assets and liabilities to another institution through High Court order.
Special Management Order: The power 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.
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: To ensure that depositors covered by the Deposit Protection Scheme receive a payout or have their deposits transferred to another institution and to achieve the best results for the institution’s creditors as a whole.
Recovery and Resolution Plans: To facilitate the Central Bank of Ireland and the individual institutions’ preparations to deal with potential instances of financial difficulties for the institutions concerned.
Along with these specific tools, the Bill also allows for a Resolution Fund to be formed in order to protect tax payers from future financial sector difficulties and will be funded by credit institutions.