The National Bank of Ukraine (NBU) welcomes the Ukrainian parliament’s decision to adopt in the second reading and as whole the Law regarding improving specific mechanisms of banking regulation (Draft Law No. 2571-д). A total of 270 MPs voted in favor of the Draft Law.
Adoption of the Law is one of the priority preliminary steps for approving the fund facility for Ukraine of the International Monetary Fund (IMF). This document fills the legal gaps found during the banking system cleanup in 2014–2016.
What does the Law prescribe?
First, the Law guarantees irreversibility of bank resolution. From now on, if a court cancels NBU decision to resolve a bank, the bank’s insolvency or liquidation procedure will not cease, and sale of assets and settlements with the bank’s creditors will continue.
In fact, the Law crosses the t’s in the legal framework that previously permitted courts to bring back to life zombie banks resolved due to insolvency. Courts authority to revive banks is limited in most world countries including in EU member states. And Ukrainian laws should conform with the European practices.
Second, the Law changes the procedure for contesting decisions of the NBU, the Cabinet of Ministers, and the Deposit Guarantee Fund during bank resolution. Courts should not assume NBU functions. Courts are to consider whether the decisions comply with law, however should not put in question calculations, estimations, opinions, and technical judgements of regulators made within their exclusive remit.
Third, the Law clearly defines conditions, procedure, and type of compensation for the former owners of resolved banks. To ensure fair and unbiased review of the size of claimed damages, the key role will be given to a special entity, i.e. ‘internationally acknowledged audit firm’.
Fourth, the law improves NBU decision-making procedure. Some provisions were amended, including on ‘professional judgement’ and procedural rights. In particular, the Law will permit detecting problem banks on earlier stages, and so preserve assets of insolvent banks and resolve banks at a lower cost.
Fifth, the government now has more bank nationalization options, if need be (including the bridge-bank instrument or transferring a share of liabilities and assets portfolio to the receiving bank). Also, the law defines practical steps that the government should undertake during and after nationalization. From now on, this process will be much more effective so that such bank could immediately commence operations.
“The Law sets clear institutional and procedural mechanisms for bank resolution. Legal provisions are the summary of world practices. As a result this law will become an instrument for advancing the banking system resilience and recovery of financial stability in times of crisis,” noted Kateryna Rozhkova, First Deputy Governor.