Contingency planning: A practitioner's guide drawing from lessons learned from dealing with bank failures
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Contingency planning: A practitioner’s guide drawing from lessons learned from dealing with bank failures John Raymond LaBrosse* and David K. Walker *International Association of Deposit Insurers, C/o Bank for International Settlements, Centralbahnplatz 2 CH-4002, Basel, Switzerland e-mail: [email protected]
John Raymond LaBrosse has been the Secretary General of the International Association of Deposit Insurers (IADI) since it was founded in May 2002. The objects of IADI are to contribute to the stability of financial systems by promoting international cooperation and to encourage wide international contact among deposit insurers and other interested parties. After starting his career at the Bank of Canada, he served in many senior positions at the Department of Finance and was a key advisor on financial sector policy issues for the Government of Canada from 1976 to 1999. Prior to his appointment as Secretary General he was Director, International, Canada Deposit Insurance Corporation (CDIC); he was also the Executive Director of the Financial Stability Forum’s Study and Working Groups on Deposit Insurance which finalized its report in September 2001. David K. Walker is Director of Policy and International for the Canada Deposit Insurance Corporation. He is responsible for developing advice on policies affecting CDIC; conducting research on emerging financial sector issues; and coordinating CDIC’s international activities. Prior to joining CDIC, he was a senior economist with the Royal Bank of Canada. ABSTRACT
A key responsibility for a depositor protection organisation is to be in a position, as soon as it
& 2006 Palgrave Macmillan Ltd, 1745-6452 $30.00
begins operating, to reimburse depositors when a bank fails. A basic requirement is for the deposit insurer to know when a bank failure is going to happen. But not all deposit protection agencies know when that is going to happen given the nature of their mandates, roles and responsibilities. If, for example, the agency is a pay-box, then it might be told by the bank supervisor that a pay out is required without any advance warning. Depositor protection organisations with broader mandates might have more advance warning and even play a key role in determining whether a troubled bank that accepts deposits might be closed. In these latter circumstances, more time can be given for advance preparations. When a bank fails it is often regarded as a crisis and indeed, banking problems can lead to very expensive overhauls of a country banking system. The purpose of this paper is to set out some practical considerations regarding the advance planning that deposit protection agencies should consider doing in order to fulfil their mandates — particularly with respect to reimbursing depositor claims in a timely fashion after a bank failure. Journal of Banking Regulation (2006) 8, 51–65. doi:10.1057/palgrave.jbr.2350041
WHAT IS CONTINGENCY PLANNING? ‘Experience may be fine but testing is better.1–13 Thinking something will work never takes the place 14 of proving that
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