Early intervention regimes for weak banks

FSI Papers  |  No 6  | 
03 April 2018
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Supervisors conduct early interventions with the aim of prompting banks to address their weaknesses. Interventions are normally based on discretionary powers and supervisory judgment. But some jurisdictions have introduced more formal intervention regimes which include sets of actions to be implemented when specific triggers are hit. Formal regimes vary significantly, particularly in how much discretion is allowed to supervisors in deciding on whether, when and how to initiate an early intervention. Formal regimes can generally provide useful backstops to discretionary regimes, as their existence can constitute a credible inducement to institutions in need of remedial action.