SBP to protect customers of failing banks and FDIs
The State Bank of Pakistan (SBP) has strengthened the country’s financial
stability framework by establishing a dedicated department to manage distressed
banks and financial institutions.
Following recent amendments to the Banking Companies Ordinance (BCO) 1962,
the SBP has been officially designated as the “resolution authority”—empowering
it to oversee the orderly handling of failing banks and other financial
entities. The newly formed Financial Institutions Resolution Department (FIRD)
will manage the resolution process for troubled institutions, including
Microfinance Banks (MFBs) and Development Finance Institutions (DFIs).
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This initiative ensures that in the event of a bank’s failure, there will be a structured and pre-planned process to manage its resolution—protecting depositors, maintaining public confidence, and preventing systemic disruptions.
Resolution planning framework introduced
Under the new framework, the SBP now requires all banks to prepare detailed resolution
plans—comprehensive blueprints outlining how each bank would be wound down or
restructured during a crisis. These plans must ensure continuity of essential
banking services while safeguarding depositor interests.
Banks are directed to appoint a senior official, preferably the Chief Risk
Officer (CRO) or Chief Financial Officer (CFO), to oversee resolution planning
and serve as the primary liaison with SBP’s FIRD.
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Deadlines and compliance
The first set of required information must reflect banks’ positions as of December
31, 2025, with submissions due by April 30, 2026. Institutions must then update
this information annually—or sooner if there are major operational or
structural changes. SBP also retains the authority to request updated data at
any time.
Data requirements
Financial institutions must share detailed information in five key areas:
·
Deposits:
Retail, corporate, and government accounts
·
Lending and Loan
Servicing: Corporate, SME, consumer, and agricultural loans
·
Payments, Clearing,
and Settlement: Cash services and both retail and wholesale
transactions
·
Wholesale Funding
Markets: Securities financing, wholesale lending, and securities
lending
·
Capital Markets and
Investments: Debt instruments, asset management, and insurance
activities
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Aligning with global standards
By introducing this resolution authority framework, Pakistan aligns itself
with global best practices, where central banks proactively plan for potential
financial institution failures. The SBP’s move aims to enhance market discipline,
protect depositors, and prevent disorderly bank collapses—ultimately
reinforcing confidence in the nation’s financial system.
Source: Pro Pakistani