The Big Short: Asia Pacific banks still prefer bailouts to bail-ins

Hong Kong has made the most significant advance with its bank resolution regime.

Asia-Pacific bank resolutions and bail-in regimes as prescribed under Financial Stability Board (FSB)’s framework vary differently but the region’s overall banking system fails to keep up with Europe and North America, according to an in-depth report from Moody’s Investors service.

In most APAC territories, authorities lack powers to bail creditors and continue to favor traditional tools like preemptive government support to resolve bank distress.

However, some countries have ongoing efforts for bank resolution reforms with Hong Kong making the most significant advance by introducing a bank resolution regime in July 2017.

Under the new resolution, authorities can declare a bank non-viable and impose losses on different classes of creditors. They also have the power to bail in senior creditors and some depositors.

The new regime also satisfies key attributes set by FSB including power to transfer or sell assets and liabilities, power to establish a temporary bridge institution, power to write down and convert liabilities, power to impose temporary stay on early termination rights, recovery and resolution planning for systemic firms, resolution powers in relation to holding companies, and power to require changes to firms’ structure and operations to improve resolvability.

Singapore is also close to full compliance as it plans to introduce a similar regime in the following months. It has also made important progress with the Monetary Authority of Singapore Amendment Bill passed in Parliament last July.

Banking authorities in New Zealand can bail in senior creditors and depositors while Japan can bail in TLAC bondholders.

Legislation is currently in the pipeline to speed up compliance in Australia, India, Korea.

Thailand and China are also taking up initiatives to reform their bank resolutions.

Meanwhile, the report noted that there is little progress in bank resolution regimes to Indonesia, Taiwan, Philippines and Malaysia since 2014.