Government panel proposes Resolution Corporation for banks, financial firms

By: | Published: September 28, 2016 7:03 PM

A Finance Ministry-appointed committee today proposed to set up a Resolution Corporation to expeditiously deal with issues concerning insolvency of financial institutions, including banks and insurers.

The suggestion to set up a Resolution Corporation was made by Finance Ministry's committee set up to draft a Code on Resolution of Financial Firms. (AP)The suggestion to set up a Resolution Corporation was made by Finance Ministry’s committee set up to draft a Code on Resolution of Financial Firms. (AP)

A Finance Ministry-appointed committee today proposed to set up a Resolution Corporation to expeditiously deal with issues concerning insolvency of financial institutions, including banks and insurers.

The suggestion to set up a Resolution Corporation, which will also be responsible for providing deposit insurance, was made by Finance Ministry’s committee set up to draft a Code on Resolution of Financial Firms.

The draft code proposes to consolidate the existing laws relating to resolution of certain categories of financial institutions, including banks, insurance companies, financial market infrastructures, payment systems, and other financial service providers into a single legislation, and provide for additional tools of resolution to enable the Resolution Corporation to maintain the systemic stability in the country.

While the Insolvency and Bankruptcy Code enacted by Parliament in 2016 provides for resolution and liquidation of non-financial firms, the proposed code aims to deal with insolvency issues of financial firms in line with international best practices, the committee said.

“Recent experience and research have shown that resolution of financial institutions requires a special regime that is faster than any traditional insolvency procedure, where rights of the creditors and other stakeholders can be overridden in the interest of the financial system (including the consumers) and the economy,” it added.

The proposed Resolution Corporation will contribute to the stability and resilience of the financial system by carrying out speedy and efficient resolution of financial firms in distress, providing deposit insurance to consumers of certain categories of financial services and monitoring the systemically important financial institutions.

It will also protect consumers of financial institutions and public funds to the extent possible. After enactment of the Financial Resolution and Deposit Insurance Bill, 2016, the Deposit Insurance and Credit Guarantee Corporation will be dissolved and all its functions will be carried out by the Resolution Corporation.

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