About the Crisis Resolution Fund
The legislation in force since 1st January 2016 has brought about the possibility to resolve problematic situations of financial institutions before their escalation. The aim of these new mechanisms is to strengthen the stability of the financial sector, to minimise costs and damages and, if possible, to eliminate the use of public financial resources.
To achieve the above mentioned aims, Act No 374/2015 Coll. defines:
- Resolution tools
- Resolution planning
- The position and powers of the Czech National Bank
- Procedures in the event of an institution or group failure
- Financing crisis resolution and
- Cross-border cooperation and processes applied
The Act empowers the Czech National Bank to act as a resolution authority, and with the aim of ensuring mechanisms for financing crisis resolution the Act imposes an obligation on the Guarantee System to establish the Crisis Resolution Fund through its Statute.
The newly established Crisis Resolution Fund will serve for the collection of funds that may be used in the event the stability of any financial institutions is threatened, so that it is not necessary to end their operation and commence the payout of deposit compensation to their clients. The Crisis Resolution Fund is therefore a source for the use of crisis resolution tools at an institution, the use of which may be proposed by the Czech National Bank in situations when it is feasible, credible and in the public interest. This fund does not serve for direct payouts of deposit compensation.
The Crisis Resolution Fund is, under the Act, composed of two funds:
- The Contribution Fund, formed from regular or extraordinary contributions from financial institutions, from financial resources obtained from the market, loans from other crisis resolution mechanisms, or state aid.
- The Operational Fund, formed primarily from proceeds from the investment of financial resources in the Crisis Resolution Fund and proceeds from completed bankruptcy and liquidation proceedings.