Bank resolutions in Europe and how they may impact Lusophone countries – Bank of Portugal governor

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Bank resolutions in Europe and how they may impact Lusophone countries – Bank of Portugal governor

11:43 CAT | 11 Oct 2017

Notícias ao Minuto (File photo) / Carlos Costa

The governor of the Bank of Portugal on Monday warned Portuguese-speaking central banks to monitor the parent companies of banks operating in their countries closely, because a resolution in Europe could have serious impacts on subsidiaries.

Carlos Costa was speaking about the resolution plans of banks according to the rules of the European Union at the 27th Lisbon meeting between central banks of the Portuguese-speaking countries, highlighting the impact that bank resolution rules in Europe could have.

The governor asked the heads of the central banks of Portuguese-speaking countries to monitor the situation of the subsidiaries of European banks operating in their markets closely, and also monitor their parent companies, since the subsidiaries may suffer serious effects from resolution or liquidation measures defined in Europe.

This might concerns, for example, the liquidation of a Portuguese bank which had subsidiaries in Angola, Mozambique or Timor, leading to the bankruptcy of that subsidiary. That is, even if it is in a good solvency and liquidity situation may be so impacted by what happens in the parent company that it closes, with effects on customers, creditors and taxpayers, for example through the activation of the deposit guarantee scheme.

“Financial institution oversight needs to be bifocal. We need to know what is going on with subsidiaries, and regulators need to keep up with what happens to the parent companies of subsidiaries in those countries,” Costa warned.

The governor of the Bank of Portugal therefore warned of the need for countries with branch offices based in the European Union to have resolution regimes in accordance with “best international practices”, so that they can deal with the application of resolution measures across border.

Costa also said there must be more “cooperation among the resolution authorities” of the various countries, “at the risk of one day waking up with a decision which impacts the deposit guarantee fund, public accounts, confidence in the system and the credibility of the supervisor”.

Regarding the supervisor’s responsibility in these matters, the Portuguese central bank governor said that [the supervisor] “is always the one who appears at the end as being responsible for everything, even though not at the source of the problem”.

Source: Lusa