Bank of Lithuania
2015-12-18
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Contributions to a special fund set; its funds, where necessary, to be used for bank restructuring

The Board of the Bank of Lithuania set the amount of contributions to be paid by seven banks, the Central Credit Union of Lithuania and one investment company to a special fund, the funds of which, where necessary, would be used for the restructuring of banks and other large financial institutions, should they face financial difficulties.  The creation of such a fund, as well as the Bank of Lithuania’s function to indicate the payers and the size of their contributions, has been provided by the amendments to the Law on Financial Sustainability, which came into force on 3 December 2015. The amendments have strengthened the possibilities to ensure the stability of the financial system.  

The new procedure is aimed at reducing the probability of a banking system’s systemic crisis, thereby avoiding downturns in economic welfare. The amendments also ensure that, with an unfavourable turn in the economic circumstances, the losses incurred by banks would not be shifted onto the shoulders of the tax payers: the responsibility would first of all have to be assumed by banks themselves and their creditors.  

The new national fund will be administered by the state enterprise Indėlių ir investicijų draudimas. AB SEB bankas, Swedbank, AB, AB DNB bankas, AB Šiaulių bankas, AB Citadele bankas, AB bankas Finasta, UAB Medicinos bankas, the Central Credit Union of Lithuania, and UAB FMĮ Orion Securities will have to pay contributions to it. The amount of their contributions will amount to EUR 10.1 million.

The annual rate of contributions payable to the resolution fund in advance will account for 0.1 per cent, or EUR 10.1 million, of insured deposits.

Regulation (EU) 806/2014 lays down that the European Union’s Single Resolution Fund will start functioning on 1 January 2016 and thus an insurance undertaking will have to transfer by 31 January 2016 the contributions collected in 2015 to the Single Resolution Fund account, specified by the Bank of Lithuania. AB FMĮ Orion Securities will not participate in the Single Resolution Fund, hence the contributions of this institution will remain in the national resolution fund.

Four banks — systemically important institutions

The Board of the Bank of Lithuania resolved to approve AB SEB bankas, Swedbank, AB, AB DNB and AB Šiaulių bankas as national systemically important institutions. These institutions were directed to accumulate additional capital buffers by the end of 2016.

The following capital buffers for other systemically important institutions were set: for AB SEB bankas — 2 per cent of the amount of total risk weighted assets; Swedbank, AB — 2 per cent of the amount of total risk weighted assets; AB DNB bankas — 2 per cent of the amount of total risk weighted assets; AB Šiaulių bankas — 0.5 per cent of the amount of total risk weighted assets.  

In order to increase the resilience of systemically important banks to adverse shocks, the provisions of Capital Requirements Directive IV provide for additional capital requirements for national systemically important financial institutions. The application of these provisions in Lithuania is regulated by the Rules for the Formation of Capital Buffers, approved by the Board of the Bank of Lithuania on 9 April 2015. Bankruptcy of a systemically important bank facing difficulties could negatively affect the financial system and thus the country’s economy as a whole. Additional capital buffers for systemically important financial institutions are set given the significance of these institutions and the potential harm that would be incurred by the domestic financial sector and the entire economy in the event of the fall of a specific institution. The additional capital set will enable these institutions to withstand sizeable likely losses and will thus reduce the probability of bankruptcy for these institutions.  

The list of systemically important financial institutions in Lithuania and the size of the capital buffer of other systemically important institutions attributed to them, which may vary between 0 to 2 per cent of the amount of a bank’s risk weighted assets, will be updated on a permanent basis and published at the end of each year (by 1 December). Systemically important institutions are to accumulate a respective capital buffer during a one-year transition period. For instance, in 2015, institutions recognised as systemically important will have to meet their additional capital buffer requirement starting from 31 December 2016.