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Burden-sharing agreements : the cart before the horse ?

  • Economics


Financial Stability Review 2008 119 burdEN-ShariNg agrEEmENTS : ThE CarT bEFOrE ThE hOrSE ? Burden-sharing agreements : the cart before the horse ? Introduction Recent crisis episodes in the banking sector have empha- sised both the importance of having sound crisis man- agement policies in place and the role of authorities in developing and implementing these policies. However, since crises tend to be highly complex and uncertain events, developing a crisis management framework is by no means simple, even in a purely domestic context. Conceiving a framework in a cross-border environment, in which several authorities will have to coordinate their actions, may be even more complex.(1) Faced with these challenges, authorities in charge of crisis management have been proactively adapting the European crisis management framework. For instance, very recently, the EU authorities – namely finance min- isters, central bank governors and heads of supervi- sory authorities – have agreed on a Memorandum of Understanding on cooperation on cross-border financial stability. This Memorandum of Understanding contains inter alia nine high-level principles for the management of a crisis involving at least one cross-border banking group at risk of being declared insolvent and with the potential to trigger a systemic crisis in another EU country (Council of the European Union (2007) and Council of the European Union (2008)). These principles concern each of the different stages of crisis management. These stages are likely to vary with the crisis situation but, as shown in Chart 1, they usually comprise an assessment of the systemic nature of the crisis, determination of a crisis resolution policy and implementation of the latter by domestic authorities. The assessment of the systemic nature of the crisis should be carried out promptly by the competent authorities and according to a common analytical framework (Principle 5). An optimal crisis resolution policy shoul

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