Protecting Consumer Access to Deposits and Credit during a Bank Failure
The Effective Transfer of Card Portfolios to a Sound Bank: Guidance for Bank Supervisors
Following the global financial crisis, regulators have increasingly devoted attention to how banks might resolve or recover their operations in the event of financial stress. When dealing with insolvent financial institutions, regulators have a variety of options at their disposal. Regulators responsible for administering bank failures have generally transferred deposits and credit card portfolios to other viable banks without any interruption in service for cardholders or merchants. However, in certain countries, regulators terminate card programs. Regulators have many considerations in administering a failed bank and may focus on closing the institution, selling traditional loans and assets, paying out deposit insurance claims and maintaining trust in the broader banking system. By failing to focus on the continued value of the bank’s payment portfolio, actions to terminate card portfolios altogether can result in considerable cost to the government, disruption to customers and undermine confidence in the banking system.
In seeking to minimize the costs and impact of the bank failure, regulators should take into account the value of payment card portfolios as an asset and explore selling or transferring the portfolio—which would otherwise typically lose value quickly if the programs are closed—to another institution. If the regulator responsible for managing the wind-down of a failing bank does not recognize the value of the card portfolio, it may not pursue its sale or transfer, requiring a payment scheme to close the failed issuer’s payment programs (BINs - bank identification numbers). Such an outcome can be detrimental for customers of the failed issuer, the government deposit insurer, retail payment systems and the economy as a whole.
Though failures are not a common occurrence, we believe it is in the interest of all stakeholders to minimize their impact when they do occur. Visa has worked with regulators to facilitate the smooth transfer of payment card portfolios to assuming institutions without any interruption in service for cardholders and merchants and we believe it is important to share our experience and perspective on best practices for seamlessly transferring payment card portfolios from insolvent to viable financial institutions. Visa is ready and willing to collaborate with regulators on issues related to payment card portfolios during bank failures.
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