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Government Assistance to the Financial Sector: an Overview of the Global Response

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Government Assistance to the Financial Sector: an Overview of the Global Response Economic Stabilization Advisory Group | November 12, 2008 Government Assistance to the Financial Sector: an Overview of the Global Response Governments across the world have taken, and continue to take, a variety of extraordinary measures to protect the financial sector and prevent a recession. The measures fall into the following categories: guarantees of bank liabilities; retail deposit guarantees; central bank assistance measures; bank recapitalization through equity investments by private investors and governments; and open-market or negotiated acquisitions of illiquid or otherwise undesirable assets from weakened financial institutions. The purpose of this publication is to provide an overview of the principal measures that have been taken in the major financial jurisdictions to support the financial system. 2 TABLE OF CONTENTS Page 1. Argentina 3 2. Australia 5 3. Belgium 8 4. Canada 10 5. Denmark 11 6. Estonia 13 7. France 14 8. Germany 16 9. Greece 19 10. Hong Kong 20 11. Hungary 21 12. Iceland 22 13. India 25 14. Ireland 27 15. Italy 29 16. Japan 31 17. Luxembourg 33 18. New Zealand 35 19. Norway 37 20. People’s Republic of China 39 21. Portugal 40 22. Republic of Korea 42 23. Russia 44 24. Spain 48 25. Sweden 49 26. Switzerland 51 27. The Netherlands 54 28. Ukraine 56 29. United Arab Emirates 57 30. United Kingdom 58 31. United States of America 61 3 ARGENTINA SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES The Central Bank of Argentina Effective November 1, 2008 the The Argentine Government has set forth new conditions to grant Central Bank reduced by 10% proposed a bill to reform the direct financial assistance to the minimum cash reserve private pension system and to financial entities. requirement for checking nationalize the pension assets account deposits in foreign managed by the country’s In the event of non-compliance currency and by 5% the private pension fund managers with these conditions, requests minimum cash reserve (AFJPs). for financial assistance are requirement for demand and subject to the analysis and time deposits made upon a court The Government said the approval of the board of order with funds arising from project was aimed at protecting directors of the Central Bank. cases pending before the court Argentineans’ pension savings (amparos). from the global financial crisis. To obtain direct financial assistance from the Central In addition, the following are the Argentine regulators have Bank, financial entities must minimum cash reserve resolved to require the AFJPs to have a liquidity ratio under 25%. requirements for time deposits in sell approximately 1.8 billion The value of the assistance foreign currency and holding of pesos (US$ 545 million) in granted shall be the requested securities in foreign currency, as Brazilian assets in order to amount, the amount necessary per the remaining terms: (i) up to provide liquidity to the Argentine to raise the liquidity ratio to a 29 days: 20%; (ii) from 30 to 59 market. maximum of 35%, the amount of days: 15%; (iii) from 60 to 89 the decrease of funding sources days: 10%; (iv) from 90 to 179 in the previous month, 20% of days: 5%; (v) from 180 to 365 the total projected assistance to days: 2%; (vi) more than 365 the financial system described in days: 0%. the monetary program, or the amount arising from the Finally, the Central Bank difference between the net worth reduced, effective November 1, of the entity and the debt 2008, 20% of the minimum cash resulting from operations reserve requirement for completed through the Central deposits, whatever their nature, Bank program to assist financial as assets of a mutual fund, in entities (whichever of these is foreign currency. the lowest). The Central Bank assistance will be granted for 180 days, renewable for the same period, with an interest rate of 1.35 BADLAR rate (and 1.70 BADLAR rate in renewal cases). Financial entities must make 4 SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED GUARANTEES OF BANK DEBT DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES prepayments depending on their liquidity ratio at the time. 5 AUSTRALIA (Announced on October 12, 2008) GUARANTEES OF BANK SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED DEBT1 DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES On November 2, 2008, the The Government has passed Australia’s central bank (the No publicly announced The Government doubled (to Australian Government legislation to give effect to its Reserve Bank of Australia) measures at this stage.3 A$8 billion) its planned executed an Interim Deed of proposal with respect to all intervened to support the Residential Mortgage Backed Guarantee (“Interim Guarantee”) deposits of Australian banks, Australian dollar on October 24, Securities (“RMBS”) purchases for certain specified wholesale building societies and credit 2008, and then again on which will apply to new (rather borrowing and deposits of unions and Australian October 27, 2008. than existing) issuances. eligible Authorized Deposit- subsidiaries of foreign-owned Taking Institutions (“ADIs”). banks for a period of three The initial A$4 billion is available years. for the Government to act as a Eligible ADIs will include cornerstone investor for both The proposal takes effect bank and non-bank RMBS ▪ Australian owned banks; through a “Financial Claims issuances. Scheme” (“FCS”). Under the ▪ Australian ADI subsidiaries of FCS, the Australian Prudential The additional A$4 billion is foreign banks; Regulation Authority (“APRA”) available for non-bank ▪ Australian branches of foreign (as administrator of the FCS) issuances only. ADIs; and must apply for the winding-up of an ADI and a declaration must The first two mandates for the ▪ credit unions and building be made by the responsible application of these funds have societies. Government minister in order for been awarded. There are certain restrictions on the FCS to apply to that ADI (an the types of liability that will be “eligible ADI”). guaranteed, including: Under the scheme, holders of 4 ▪ senior unsecured debt; protected accounts with net credit balances are entitled to ▪ liabilities arising from a payment from APRA of the payment obligation in a balance plus accrued interest debenture, certificate of (subject to certain adjustments deposit, bank bill, commercial and compliance with the paper, bond or note issued, provisions of the FCS). Also, drawn or made by the ADI the APRA is assigned the that is not ‘complex’ and has relevant account holder’s right to a term of 60 months or less; claim this amount from the ADI. ▪ liabilities not due and payable All deposits are currently on account of the operation of covered by the FCS. However, any cross-default clause; and from November 28, 2008 the ▪ liabilities not due and payable amount of any deposit over on account of the operation of A$1 million will only be covered a clause entitling the by the FCS if a fee has been 6 GUARANTEES OF BANK SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED DEBT1 DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES beneficiary to require paid by the eligible ADI (in line prepayment before the with that proposed for the scheduled maturity of the wholesale funding guarantee). payment obligation, other The A$1 million threshold than as a result of the ADI applies per depositor per being placed under external institution. administration. The Government has indicated Additional conditions apply to that the FCS will be the liabilities of the Australian administered so that it applies to branches of foreign ADIs. (See all deposits held in eligible ADIs also the application of the by all types of legal entities, Interim Guarantee to certain regardless of where the deposits held in the Australian depositor resides. It will also branches of foreign ADIs as set apply to deposits held in any out in the next column.) currency. The FCS will not apply to financial products that The Interim Guarantee will are not deposit products, such expire on November 27, 2008. as market-linked investment However, it is intended that a products. separate facility for the guarantee of certain specified wholesale borrowing and The Interim Guarantee (referred deposits will be put in place prior to in the previous column) of to that date to take effect from wholesale funding includes a November 28, 2008. guarantee of liabilities of a foreign ADI to a person treated No fees apply in respect to the as an Australian resident in Interim Guarantee. However, respect of a deposit in Australia the Government has (unless such a liability arose as foreshadowed a fee structure for a result of a transfer from a non- the future guarantee, the Australian resident to an quantum of which will be set by Australian resident on or after reference to the relevant issuer’s October 24, 2008). This aspect credit rating and will be the of the Interim Guarantee is same regardless of the tenure of subject to the same expiry date the debt securities.2 of November 27, 2008. However, it is expected that similar arrangements will be part of the new facility to be put in place and applying from November 28, 2008. The Government has announced that, from this date, a fee (in line with the wholesale funding 7 GUARANTEES OF BANK SPECIAL CENTRAL BANK RECAPITALIZATION PURCHASES OF TROUBLED DEBT1 DEPOSIT GUARANTEES ASSISTANCE MEASURES MEASURES FINANCIAL ASSETS OTHER MEASURES guarantee proposal) will apply to any guarantee of deposits with the Australian branches of foreign ADIs. 1 The guarantee scheme is not restricted to “inter-bank” debt but extends to all term funding. 2 The current proposals are for a fee of 70bps for AA rated firms, 100 bps for A rated firms and 150bps for BBB and unrated firms.
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