Bridge Bank as a bank failure management tool: Ukraine’s case

Abstract

The article aims to present an overview of Ukraine’s framework and experience on application of the bridge bank as a bank failure management tool. Ukraine’s regime, which is a single-track regime, allows using a bridge bank to deal with failures of any bank, including small and medium sized banks. System analysis of first and second level acts, as well as available scientific publications served as a methodological basis for the research. It may be concluded that Ukraine’s framework includes two variations of the bridge bank. As a general rule, a bridge bank shall be created for three months and the investor must be found in advance. Such bridge bank has simplified corporate governance and is not subject to mandatory economic standards, currency position limits, the procedure for forming and maintaining required reserves, forming provisions for losses on bank asset transactions and determining the amount of credit risk on all bank asset transactions. For systemically important banks and complex cases as defined in the law, a bridge bank can be created for a period not exceeding one year with a possible extension for up to one year. Such bridge bank may be established in advanced, which shall be considered a banking secrecy. It shall comply with almost corporate governance requirements envisaged for banks and in three months after its establishment must ensure compliance with the requirements capital and liquidity ratios. The law provides for simplified procedure for establishment and licensing of a bridge bank, and the DGF shall be exempt from payment of taxes and other fees in connection with creation of a bridge bank. The authorized capital of the bridge bank shall be formed at the expense of the DGF. Ukraine has two cases of applying a bridge bank tool, and both proved to be efficient.