September 26, 2014
Comments on HM Treasury’s Consultative Document: Transposition of theBank Recovery and Resolution Directive
Japanese Bankers Association
We, the Japanese Bankers Association, would like to express ourgratitude for this opportunity to comment on the consultative document:
Transposition of the Bank Recovery and Resolution Directive, released on
July 23, 2014 by HM Treasury.
We hope that our comments below will be of assistance and offer anadditional point of reference as you work towards finalising the framework.
(General comments)
We understand that international discussions have been made onco-operation between the authorities in different countries in order toeffectively plan for and manage the failure of firms which operate acrossborders.
We agree with the proposal that the Bank of England’s resolution powers
to the UK branch of a third country institution are restricted to “back-stop”
powers to be used in the event that this co-operation proves ineffective, andwhere action is required to protect the public interest.
In the resolution of cross-border banks, laws and regulations of a homejurisdiction and powers of a home authority should be respected first.
Utmost efforts should be made to ensure communications between theauthorities. In addition, “Chapter 9. Institution-specific cross-bordercooperation agreements” of the Key Attributes of Effective Resolution
Regimes for Financial Institutions (KA) issued by the Financial Stability
Board (FSB) in October 2011 underlines the importance of prior consultationand discussions, stating that “these agreements should, inter alia: …. (vii)
include agreed procedures for the host authority to inform and consult thehome authority in a timely manner when there are material adverse
developments affecting the firm and before taking any discretionary action
or crisis measure; (paragraph 9.1 vii)”.
Given the above, we believe that the Bank of England should have limited
1resolution powers over a third country institution with a branch located inUK.
(Specific comments)
Chapter 15 Branches of third country institutions
Q.23 (P.50)
Do you feel that the Bank of England should have the full set ofresolution powers (with the exception of share transfer powers) overbranches of third country institutions when acting independently to resolve abranch?
A.
We do not deny that the Bank of England should have resolution powers
over branches of third country institutions only to deal with unlikely
scenarios where the home authority’s measures prove to be insufficient, forexample, cooperation from the home authority in the resolution proceedings
is not available. However, such resolution powers should be limited.
The power of the UK to have the right to refuse to recognize third country
resolution proceedings assumes the extremely unusual cases wherecooperation between authorities may prove ineffective and where action isrequired to protect the public interest. Such refusal power should therefore
be limited within the appropriate scope.
In addition, the provision of the full set of the powers to the Bank ofEngland may increase liquidation costs for resolution proceeding as well as
negate the likelihood of reaching an agreement between the Bank of England
and a home authority. For example, in the resolution of a third country
institution with a branch located in UK, the Bank of England may
independently take enforcement measures, such as a sale of assets of the UK
branch, with a view to satisfying creditors of the UK branch, thereby giving
rise to the sale at a price lower and leading to an increase in liquidation
costs.
Q.24 (P.50)
If not, what powers do you feel would be appropriate, in order to ensurethat the risks posed by branches of third country institutions can beaddressed effectively?
2A.
We support the limited powers, including a power to require the branch tosubsidiarise, as set forth in this Consultation Paper. The action to change thestatus of a firm from a branch to a subsidiary might, through the local
incorporation process, provide an opportunity for re-discussions about
relevant situations between the Bank of England and a home authority,
thereby leading to an appropriate conclusion and minimizing liquidation
costs.
In principle, branches of a foreign bank are directly subordinate to thehead office located in a home country and are under the control of a homeauthority. Given this, in the case where a host authority needs to execute theresolution of a branch of a third country institution, it is consideredappropriate to carry out resolution proceedings only after the branch issubsidiarised and is under the control of a host financial supervision.

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