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Further Measures on Stabilisation of Credit Institutions

PRACTICE AREA GROUP: Banking, Financial Institutions
DATE: 30.09.2011

The Central Bank and Credit Institutions (Resolution) Act 2011 was signed into law on 20 October 2011. The Act now requires the making of the necessary Commencement Orders by the Minister for Finance.

The Act provides for additional powers for the Central Bank of Ireland. These are intended to achieve an effective and efficient resolution regime for credit institutions including building societies and credit unions that are failing or likely to fail and which is effective in protecting the Exchequer and the stability of the financial system and the economy. 

The Act gives the Central Bank power to take control of banks, appoint managers to run them and remove directors, staff and consultants and to move their deposits and loans to other banks. It provides for the establishment of a Credit Institution Resolution Fund which would provide a source of funding for the resolution of financial instability or in an imminent serious threat to the financial stability of an authorised credit institution. Authorised credit institutions will be obliged to contribute to the resolution fund. An authorised credit institution for the purposes of the legislation is a licensed bank, building society or credit union.

The Central Bank will be given the power to establish special purpose vehicles or “bridge-banks” which may hold assets and liabilities on a temporary basis following the making of a transfer order in respect of assets or liabilities. The Central Bank will also be empowered to make special management orders in relation to an authorised credit institution or its subsidiary or holding company of the authorised credit institution in certain circumstances. The Act also provides for powers of the Central Bank regarding liquidation of authorised credit institutions. Authorised credit institutions may also be directed to prepare a recovery plan setting out actions that could be taken to facilitate the continuation or secure the business or part of the business of that institution.

The legislation will in due course replace the provisions of the Credit Institutions (Stabilisation) Act 2010 which ceases to have effect on 31 December 2012 or at a later date substituted by resolution of both Houses of the Oireachtas.

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