Moody's Investors Service said that, while the authorities in Asia Pacific have plans to implement bank resolution and bail-in regimes, they are proceeding more cautiously than their counterparts in the US and EU, where progress with the agenda is more advanced.
"The political impetus and perceived need for the kind of reforms being adopted in the West, particularly those relating to bail-in regimes, have been weaker in Asia Pacific," said Stephen Schwartz, a Moody's Senior Vice President.
"Having undergone successful recapitalization programs and financial sector reforms in the wake of the 1997-98 Asian financial crisis, the region's banks were well-capitalized and able to withstand the global turmoil associated with the global and Euro crises with minimal stress," says Schwartz of the Credit Policy Department in Hong Kong.
Schwartz was speaking on the release of Moody's special comment, "A Compendium of Bank Resolution and Bail-in Regimes in the Asia-Pacific".
The report summarizes current resolution and bail-in regimes in nine banking systems, of which eight are members of the Financial Stability Board (FSB): Australia, China, Hong Kong, India, Indonesia, Japan, Korea, and Singapore.
Notwithstanding Asia Pacific's caution in adopting "Western-style" resolution and bail-in regimes, pressure is building on the region's governments and regulators through the G20 process and, in some cases, the need to align local regimes with those outside the region in order to cooperate with overseas regulators in recovery and resolution planning for global systemically important banks.
However, in the view of Moody's, the emphasis of authorities in Asia Pacific remains on crisis prevention through sound supervision, macro prudential measures, and the implementation of stringent capital and liquidity requirements consistent with Basel III.
Regulators in the region tend to view early action as preferable to addressing banking stress, rather than waiting for resolution and bail-in regimes to be triggered.
In the meantime, a number of the region's banks are already well advanced in issuing Basel III-compliant capital instruments with point of non-viability clauses. However, it remains to been seen whether individual countries will allow triggers to be breached in the event of banking stress or, as seems more likely, various forms of public support would be forthcoming to prevent losses from being imposed on investors.