KUALA LUMPUR (Sept 23): Malaysia’s central bank said on Monday that it is exploring ways to broaden the range of acceptable collateral during stressed periods and improving the time taken to value such collateral.
There is a need for resolution planning for institutions not covered by Malaysia Deposit Insurance Corporation (PIDM) such as investment banks, said Bank Negara Malaysia (BNM) Governor Datuk Seri Abdul Rasheed Ghaffour. The central bank will work with the industry and stakeholders on such initiatives, he said.
“It is perhaps timely for us to reflect on the applicability of the resolution framework for non-member institutions,” Abdul Rasheed said. “This would ensure that all institutions, regardless of membership status, are adequately prepared to manage potential crises.”
Abdul Rasheed was speaking at the National Resolution Symposium 2024 hosted by PIDM, where he also spoke on managing crises in overseas operations and stressed the crucial need for effective communication strategies.
Financial institutions must thoughtfully plan how information is shared within the organisation and with shareholders, and better coordinated cross-border communication can significantly reduce the risk of confusion or misinformation during a crisis as well as maintain public confidence, he said.
“An important consideration that is often overlooked in a recovery plan is the complexity of cross-border interactions, particularly for institutions that operate in multiple jurisdictions,” Abdul Rasheed flagged.
The global nature of many financial institutions means that risks in one part of the group can quickly spread and affect other areas across borders, he warned.
“To mitigate this, it is essential for financial institutions to clearly define the arrangements between subsidiaries during times of stress,” Abdul Rasheed said. “Proactively identifying and addressing these dependencies is key to strengthening crisis management.”
Bank runs to bank sprints
Speaking ahead of Abdul Rasheed, PIDM chairman Datuk Seri Dr Zukri Samat said effective crisis communication is crucial for all organisations, especially in the digital age where social media can rapidly turn bank runs into "bank sprints".
In situations where authorities perceive an elevated risk of widespread runs on financial institutions, or uncertainty about the solvency or liquidity of critical parts of the financial system, effective and timely communication is essential in restoring confidence, he said.
PIDM, as the resolution authority for its member institutions, and BNM have jointly developed policy frameworks for recovery and resolution planning to strengthen the crisis preparedness and resilience of Malaysian financial institutions.
Recovery planning, led by BNM, ensures that banks can respond effectively to financial distress and restore viability during severe stress.
Meanwhile, resolution planning, led by PIDM, ensures that banks can resolve issues in a prompt and orderly manner without causing severe disruption to the financial system.