RBI panel suggests FRA to deal with failing institutions

An RBI working group has recommended setting up a Financial Resolution Authority (FRA) to effectively deal with failing financial institutions and ensure overall stability in the system.
"There should be a single FRA mandated under the law for resolving all financial institutions and FMIs (Financial Market Infrastructure), in coordination/cooperation with the respective financial sector regulators, as deemed necessary by the FRA...(it) should be institutionally independent of the regulators/supervisors and the government," said the RBI report.
The report on 'Resolution Regime for Financial Institutions' underlined the need for a policy framework to deal with the failure of such entities in a manner that avoids disruption of critical financial services.

The central bank constituted the working group in January 2013 under the chairmanship of then RBI Deputy Governor Anand Sinha, with Economic Affairs Secretary Arvind Mayaram as co-chairperson.
The group recommended that the FRA can be set up by either converting the Deposit Insurance and Credit Guarantee Corporation (DICGC) or creating a new entity that will subsume the DICGC.
"The mandate of FRA will be to resolve failed financial institutions and FMIs (other than those owned and operated by RBI) along with providing deposit insurance and protection to insurance policy holders and investors/clients within limits, if required at the resolution stage," the report said.

It said with a view to detect problems at an early stage and have suitable redressal and revival mechanisms, the RBI may devise an effective methodology for early intervention and structured actions in line with the recommended stages.

The group recommends that the FRA should have a variety of resolution tools mandated by the proposed statute to carry out orderly resolution of failing financial institutions and FMIs without taxpayers' support.
The group suggested that the government may, on recommendation by the Financial Stability Development Council, be empowered to place a financial institution under temporary public ownership.
"There should be intensive consultation with the concerned regulator and the FRA before placing the institution under temporary public ownership," it said.