processes (i.e. the supervisory authority, trustees appointed in trusteeship and third parties that might be involved in any of these processes). Another provision that tends to reinforce legal security and increase the interest of eventual acquirers is to ensure that any act authorized, ordered, or disposed by the supervisory authority will not be subject to any judicial authorization and will not be deemed inefficient.

- _Deposit insurance agency._ If the assets of the failing bank are smaller than the excluded liabilities, the DIA may intervene to close the gap. This must be done under the least cost resolution scheme. With this provision, fiscal cost is set up at a maximum at the time of determination of deposit coverage.

- _Use of trust funds to transfer assets._ Trust funds are useful for transferring and administrating the assets of the GB. The good assets of the failed bank are placed in a trust fund, which backs the issuing of bonds with different privileged claims. The trust fund usually issues two classes of bonds with different seniority: A-Bonds and B-Bonds to be subscribed, respectively, by acquiring bank(s) and the DIA. A-Bonds enjoy absolute priority of claims and their value equals undertaken liabilities by acquiring bank(s), which is generally significantly lower than the total value of assets in the trust fund, implying a low default probability. The assignment of certain assets through a trusteeship agreement establishing privileged claims for the acquiring institution significantly reduces the risks it assumes in the operation, thereby increasing the incentives for the acquisition of excluded assets and liabilities and contributing to a more rapid and efficient reorganization of buyers.<sup>46</sup>

- _Importance of Sequence of Activities._ It is important to have a pre-determined sequence to enhance the implementation process.<sup>47</sup> The following table illustrates one possible sequence for the implementation of the GB-BB method, which can be adapted to specific country circumstances (including some practical tips):

1. Issue resolutions declaring the start of the BRP and appointing intervention officers.

2. Obtain database of failing bank and gather all available information (e.g. number and geographic distribution of branches, personnel, risk ratings, inspection reports, etc).

3. Make adjustments to the failing bank’s balance sheet according to market values and get estimates of assets and liabilities. To calculate liabilities: (i) group deposits according to the range specified by the DIA, indicating the number of accounts within each and the total amount they represent to help estimate insured deposits payout, (ii) compute the total deposit insurance to be paid in case of bankruptcy, (iii) estimate DIA costs, or the difference between the total insured deposits to be paid versus net returns after liquidation, (iv) identify “sensitive” deposits (e.g. pension accounts) and define a contingency plan for them, (v) compute current labor costs on monthly basis and, (vi) calculate the cost of dismissing all personnel.

> 46 The use of a trust fund is also convenient for the case of more than one acquiring bank, as claims on good assets are equally distributed among them. The Guatemalan authorities report this was a very useful feature of the bank resolution mechanism embedded in the law, which helped them implement two resolution cases within three months, including the resolution of the third largest bank in the system. The BCF was also found to be helpful; as of March 2007, its board has approved transactions for all banks that participated in the resolution of the first case.

> 47 In a recent implementation of the GB-BB method in Bolivia, supervisory authorities noted the importance of having this feature in their manual to guide during times of stress while ensuring that all crucial activities are properly followed and timed adequately.

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