The Czech National Bank (CNB) is pursuant to Act No. 374/2015 Coll., the Act on Recovery and Resolution in the Financial Market (Act), the resolution authority for banks, credit unions and certain investment firms (hereinafter "institutions”) in the Czech Republic.
Resolution means the restructuring of an institution by a resolution authority, through the use of resolution tools, to ensure the continuity of its critical functions, preservation of financial stability and restoration of the viability of all or part of that institution, while the remaining parts are put into normal insolvency proceedings. Hence, resolution is a process by which the authorities can intervene to manage the failure of an institution in an orderly fashion.
The Act provides the CNB with more comprehensive and effective arrangements to deal with failing institutions at national level, as well as cooperation arrangements to deal with cross-border banking failures as of 1 January 2016.
The issue of effective resolution gained in importance during the recent financial crisis of 2008–2009 when many countries and central banks were forced to minimize adverse impacts of bank failures using, among other measures, also taxpayers' money. The main objective of the new credible recovery and resolution framework is to avoid the need for taxpayers' money to the greatest extent possible and to transfer the costs of a potential failure of an institution to its owners and, if necessary, its creditors.
The main roles and powers of the CNB as the resolution authority include:
- Resolution planning
- Resolution execution
- Prescribing contributions to the resolution financing arrangement
In the context of the planned departure of the United Kingdom of Great Britain and Northern Ireland ("the United Kingdom") from the EU ("brexit"), CNB has published a draft measure of a general nature (pdf, 277 kB, in Czech only) responding to the uncertainty regarding the treatment of capital instruments and liabilities eligible for write down, arising from contracts concluded under English law, after brexit.
In this context, the CNB points out that the above-mentioned measure of a general nature will be issued as a temporary solution for as long as the conditions of Sections 74b(2) and 149(2) of the Act on Recovery and Resolution in the Financial Market are met; if there is a change in the UK legal regime, CNB may repeal this measure of a general nature. At the same time, the CNB strongly recommends that liable entities, in their own interest, continue their efforts to pursue the inclusion of bail-in recognition clauses into existing contracts, respectively to conclude new contracts with the bail-in recognition clauses, if such contracts are governed by the law of third countries (including English law).