On 28 February 2011, the Central Bank and Credit Institutions (Resolution) Bill 2011 (the "Bill") was published by the outgoing Government. Its purpose is to provide an effective and expeditious resolution regime for certain credit institutions at the least cost to Ireland. If enacted, the Bill will provide a permanent regime for the resolution of certain failing institutions. The current emergency legislation, the Credit Institutions (Stabilisation) Act 2010 (the "Stabilisation Act") lapses on 31 December 2012 unless extended, and applies only to a limited class of credit institution in any case.
The Bill was initiated in the Seanad in response to the requirement under the EU-IMF Programme of Financial Support for Ireland to introduce legislation on a special bank resolution regime by the end of the first quarter of 2011. The Bill is at the first stage of the legislative process and the current text may be subject to amendment, particularly as the new Government will now determine its future.
The Bill will apply to "authorised credit institutions" meaning:
banks licensed under the Central Bank Act 1971; building societies incorporated, or deemed to be so incorporated, under the Building Societies Act 1989; and credit unions registered as such, or deemed to be so registered, under the Credit Union Act 1997. Unlike the Stabilisation Act, the Bill will apply to banks irrespective of whether they have received financial support from the State.
While the Stabilisation Act is in operation, an authorised credit institution that is a "relevant institution" for the purposes of the Stabilisation Act will not be subject to the Bill. Therefore if the Bill is enacted, its provisions will only apply to those banks licensed in Ireland which have not received financial support from the State. Once the Stabilisation Act has expired, all banks will be subject to the same resolution legislation.
HIGH LEVEL SUMMARY OF THE BILL
Powers of resolution
Under the Bill, where certain pre-conditions are met, the Central Bank of Ireland (the "Central Bank") has the power to:
propose an order for the transfer of all or any specified part of the assets or liabilities of an authorised credit institution (a "Proposed Transfer Order"); and propose an order for the appointment of a special manager to an authorised credit institution (a "Proposed Special Management Order"). The powers of the Central Bank to make such orders are similar to those granted to the Minister for Finance (the "Minister") under the Stabilisation Act. The Bill will also:
establish a Credit Institutions Resolution Fund (the "Fund") to provide a source of funding for the resolution of financial instability in, or an imminent serious threat to the financial stability of, an authorised credit institution;
empower the Central Bank to establish "bridge-banks" to hold assets or liabilities transferred pursuant to a transfer order; empower the Central Bank to present a petition to the High Court for the winding up of a credit institution; and empower the Central Bank to direct that an authorised credit institution prepare and implement a recovery plan and empowers the Central Bank to prepare a resolution plan for the institution. Vesting of powers
Unlike the Stabilisation Act the resolution powers under the Bill are to be vested in the Governor of the Central Bank, rather than the Minister. However the Minister will be given certain powers, such as to make financial incentives available to any proposed transferee under a transfer order.
The Bill will not affect the independence of the Central Bank nor the Governor of the Central Bank in the performance of their functions.
The Fund will provide resources for the resolution of an authorised credit institution. The Fund shall be constituted by contributions made by authorised credit institutions, any sums paid into it by the Minister and interest on those contributions. The Minister will be entitled...