After navigating through the turbulence of the Resolution Phase, the Stabilization or Post-Resolution Phase is crucial for a bank to regain its footing and continue its operations. This phase involves a series of steps aimed at stabilizing the bank and ensuring it can perform its essential functions once more.
What is the Stabilization/Post-Resolution Phase?
The Stabilization or Post-Resolution Phase is the period following the application of the resolution tool. During this time, the bank undertakes various procedures to stabilize its operations and restore normalcy. This phase is critical for rebuilding trust among stakeholders and ensuring the bank’s long-term viability.
Key Components of the Post-Resolution Phase
1. Workflow for the Post-Resolution Phase
A detailed workflow is essential for guiding the operational sequences necessary to stabilize the bank during the Post-Resolution Phase. This workflow includes several key elements:
- Issue of New Equity:
- Recapitalization Steps: The bank must follow a clear process for issuing new equity. This involves recapitalizing the bank by writing down/off and converting eligible instruments. The steps ensure that the bank has sufficient capital to continue its operations.
- Global Valuation Adjustments:
- Loss Registration and Accounting Adjustments: The bank must register the losses incurred during the resolution and record the appropriate accounting entries. This includes introducing adjustments at the global, portfolio, and contract levels to reflect the new financial reality.
- Equity Allocation:
- Procedure for New Shares: Once new equity is issued, the bank must allocate these shares to the new shareholders. This involves ensuring that the allocation process is transparent and fair, providing new shareholders with their respective shares based on the recapitalization plan.
- Back to Trading (only when the bank is listed):
- Authorization and Information Provision: The bank needs to obtain authorization to trade the new shares and resume trading of non-affected instruments. Additionally, it must provide new shareholders with sufficient information to value and price the new shares accurately. This step is crucial for restoring market confidence and ensuring liquidity.
Importance of the Post-Resolution Phase
The Post-Resolution Phase is vital for the bank’s recovery and long-term stability. By following a structured workflow, the bank can ensure that all necessary steps are taken to stabilize its operations and restore confidence among stakeholders. This phase also provides a clear path for the bank to return to normalcy, ensuring that it can continue to perform its essential functions.
This last phase is a critical part of the core bail-in processes. It involves meticulous planning, robust operational workflows, and effective communication with stakeholders. By understanding and effectively managing this phase, banks can navigate the aftermath of a financial crisis more efficiently, ensuring stability and continuity for themselves and the broader economy.
