Resolution tool
Based on the objectives and general resolution principles, the Bank Resolution Law provides four resolution tools:
- Sale of the business tool
- Bridge institution tool
- Asset separation tool
- Bail-in tool
The purpose of all these bank resolution tools is to carry out the resolution of the bank in the shortest period possible (usually during a weekend), and on the first following day the bank, i.e. the new purchaser (meaning the entity to which the shares, assets, liabilities, rights have been transferred, which includes the bridge institution and the asset management vehicle) can provide continuous execution of the critical functions of the bank under resolution. The transfer of shares, assets, rights and liabilities is carried out without requiring the consent of the shareholders and creditors of the bank under resolution or any other person.
Sale of the business tool enables the National Bank to transfer to a purchaser that is not a bridge institution the shares, instruments of ownership, all or part of the assets, rights or liabilities of the bank under resolution. If the purchaser acquires assets, rights and liabilities from the bank under resolution at the time of the transfer, they must have a prior approval from the competent supervisory authority for performing the financial activities related to the transferred assets, rights or liabilities. If the purchaser acquires shares that represent qualified holding in the bank under resolution at the time of the transfer, they must have prior approval from the National Bank as a competent supervisory authority for issuing approval for acquiring qualified holding in the bank.
Bridge institution is a new tool that is being introduced in the Bank Resolution Law. It is a legal entity which is wholly or partly owned by the Government of the Republic of North Macedonia, and that is established in order to acquire temporarily all or part of the shares, assets, rights and liabilities of the bank, with the aim of maintaining continuous access to the critical functions of the bank under resolution. The National Bank exercise control over the bridge institution operations. The bridge institution can be established as a bridge joint stock company or a bridge bank. A bridge bank should meet the standards applicable for issuing a license for founding and operating a bank in accordance with the Banking Law. The period for which the bridge institution is established, as a rule, cannot exceed two years from the date of last performed transfer of shares or other ownership instruments, as well as all or part of the assets, rights and liabilities of the bank under resolution.
Asset separation is a tool used to transfer the assets, rights and liabilities of a bank under resolution or a bridge institution to an asset management vehicle that is wholly or partially owned by the Government of the Republic of North Macedonia and controlled by the National Bank. The asset management vehicle shall not perform banking activities, while it shall manage the transferred assets, rights and liabilities in order to increase their value with the aim of their sale or monetization. The asset separation tool is always applied together with some of other resolution tools.
Bail-in tool is new tool, which largely defines the essence of the Bank Resolution Law, the aim of which is loss coverage primarily by the shareholders and other bank creditors. This tool is usually used if the National Bank assesses that there is a real possibility, if applied, together with the implementation of other measures, including the measures provided for in the reorganization plan, to ensure stable and long-term viability of the bank. This tool is used for the purpose of:
- increase in the bank's own funds at a level that will enable the bank to restore its viability and sustain market confidence in the bank, or
- conversion into shares or reduction of the principal amount of bank’s claims and debt instruments of the bank that are transferred: 1) to a bridge institution for providing share capital or initial capital for this institution, or 2) under the sale of business tool or asset separation tool.
The bail-in tool may be used for the liabilities that are not excluded from the scope of this tool, in accordance with the Bank Resolution Law (for example, covered deposits are excluded). If in the bank resolution process the bail-in tool is applied, the management board of the bank under resolution or the persons appointed by the National Bank shall develop a reorganization plan for the bank under resolution maximum within one month.