The Colombian Finance Superintendency (SFC, for its acronym in Spanish) published a circular on the frameworks which may be applied to supervised entities in situations of material stress. These situations generally refer to cases of imminent bankruptcy. The circular requires supervised entities to present resolution plans to ensure the stability of the financial system and prevent a systemic impact if a bank is unable to fulfill its obligations. In the document annexed to the SFC circular, there is also a chapter which concerns the bridge bank figure included in the Basic Legal Document (BLD). The bridge bank is a temporary structure that takes over the management of the bankrupt entity to ensure the seamless continuity of banking operations. The regulations are already in force.
- The entities obliged to present resolution plans will be selected by the SFC, taking into account criteria regarding size, complexity, interconnectivity, substitutability, interconnection and systemic risk levels. The selection will be made through individual communications no later than April 2020.
SFC understands that a bank faces material financial stress when it has exhausted all the alternatives aimed at recovering or restoring normal operations, which could imply losses of all, or more than eighty percent (80%), of its capital or that the value of its assets is less than its obligations, among others.
- To draw up the resolution plan, supervised entities shall take into consideration their organizational and operational structures, the jurisdictions where they operate, their financial situation, critical operational services and functions, and information systems.
For the creation of bridge banks, the measure establishes:
- Exceptions to minimum compliance requirements. As long as it maintains its status as a special credit establishment, the bridge bank is not subject to provisions such as minimum capital requirements, solvency, legal reserve regimes, forced investments or reserve requirements.
- Process of constitution. The bridge bank may be constituted before the SFC at any time, regardless of whether there is a specific situation requiring it to act. It will be constituted through an application presented by the Guarantee Fund of Financial Institutions (FOGAFIN, for its acronym in Spanish), including the application for constitution, articles of association, operations and investments which may be made by the bridge bank, and the appointments of figures to handle the corporate governance of the bridge bank.
- Authorization for bridge bank activation by the SFC. Once it has authorized the constitution of the bridge bank, and if an event occurs where a credit establishment is forced to go into liquidation, legal representatives of Fogafín and of the constituted entity must inform the SFC of the need to activate the bridge bank as a resolution mechanism. This means that the SFC can authorize the aforementioned entity to begin operations.
- Notification of bridge bank activation. Once the SFC authorizes the activation of the bridge bank, its legal representative must notify the infrastructure providers and, if applicable, the global custodians of securities, of this activation, so that these entities can execute the affiliation procedures enshrined in their regulations to guarantee business continuity. Once the bridge bank has been activated, a legal representative of Fogafin and the legal representative of this entity must inform the assets and liabilities holders concerning the transfer of resources.
- Supervision. The bridge bank will be supervised by SFC on the same terms as other credit institutions. Likewise, the risk management systems adopted or established by the bridge bank will be supervised by SFC.