What are the notable contents on bank run in Vietnam under the Law on Credit Institutions 2024?
What are the notable contents on bank run in Vietnam under the Law on Credit Institutions 2024?
The Law on Credit Institutions 2024 was approved by the National Assembly of Vietnam at the 5th extraordinary session of the 15th National Assembly.
On the morning of February 19th, at the Presidential Palace, the Office of the President organized a press conference to announce the decree of the President of the Socialist Republic of Vietnam on the laws passed by the 15th National Assembly at the 5th extraordinary session, including the Law on Credit Institutions 2024.
The Law on Credit Institutions 2024 has many important new points, and one of the notable contents is the provision on bank run.
Firstly, the definition of bank run is stated in Article 31 of Article 4 of the Law on Credit Institutions 2024 as follows:
A bank run is when credit institutions are faced with the situation where many depositors withdraw their funds, leading to the risk of the credit institution being unable to make payments or unable to make payments as regulated by the Governor of the State Bank. |
To limit and control the issue of bank run, which can lead to the security of the banking system being compromised, the Law on Credit Institutions 2024 has proposed the following two measures:
Firstly, the early intervention measure is stipulated in Article 156 of the Law on Credit Institutions 2024, specifically:
Early intervention in credit institutions, branches of foreign banks
1. The State Bank shall consider and decide to implement early intervention when credit institutions, branches of foreign banks fall into one or more of the following cases:
a) The accumulated losses of the credit institution, branch of foreign bank are greater than 15% of the value of charter capital, capital granted and reserves recorded in the most recent financial statements audited or as concluded by the competent state agency's inspection, audit, and violating the minimum capital adequacy ratio prescribed in point b, clause 1, Article 138 of this Law;
b) Having a rating below average as prescribed by the Governor of the State Bank;
c) Violating the prescribed ability to repay ratio in point a, clause 1, Article 138 of this Law for a continuous period of 30 days;
d) Violating the minimum capital adequacy ratio prescribed in point b, clause 1, Article 138 of this Law for a continuous period of 06 months;
e) Being subjected to a bank run and reporting it to the State Bank.
Secondly, the measure of strict control of credit institutions is regulated in Article 162 of the Law on Credit Institutions 2024, specifically:
Strict control of credit institutions
1. The State Bank shall consider and decide to place credit institutions under strict control when they fall into one of the following cases:
a) The credit institution intervened early without a remedial plan being sent to the State Bank or not adjusting the remedial plan according to the written request of the State Bank;
b) Within the time limit for implementing the remedial plan, the credit institution intervened early is unable to implement the remedial plan;
c) The time limit for implementing the remedial plan has expired and the credit institution cannot remedy the situation leading to early intervention;
d) Being subjected to a bank run and having the potential to compromise the safety of the credit institution system;
e) The capital adequacy ratio of the credit institution is lower than 04% for a continuous period of 06 months;
f) The credit institution being dissolved is unable to fully repay its debts during the liquidation process.
Therefore, when a credit institution faces a bank run, the State Bank will implement the following measures to control and ensure the security of the banking system:
(1) Implementing early intervention when a credit institution faces a bank run and reporting it to the State Bank.
(2) Applying strict control to credit institutions when a credit institution faces a bank run and has the potential to compromise the safety of the credit institution system.
What are the notable contents on bank run in Vietnam under the Law on Credit Institutions 2024? (Image from the Internet)
What should credit institution do in the case of bank run in Vietnam?
In the case of a credit institution experiencing a bank run, the following guidelines must be followed according to the provisions of Article 191 of the Law on Credit Institutions 2024:
Firstly, the credit institution experiencing a bank run must report to the State Bank and take the following measures immediately:
(1) Not distribute cash dividends; suspend or restrict credit granting activities and other activities that use the credit institution's funds; implement other solutions to meet the requirements of deposit payment to customers.
(2) Implement the measures in the remedial plan for a bank run situation as prescribed in Article 143 of the Law on Credit Institutions 2024; update and adjust the plan as necessary.
Specifically, the credit institution must implement the following main measures:
- Increase charter capital, granted capital, and the time of implementation; roadmap for reducing the ownership ratio of shareholders, members contributing capital as prescribed in point b, clause 1, Article 159 of the Law on Credit Institutions 2024. - Improve liquidity capacity; strengthen the holding of highly liquid assets; sell, transfer assets, and other solutions to meet the requirements of ensuring safety in banking operations. - Enhance business efficiency. - Improve management and operation capacity. - Handle existing financial weaknesses, bad debts, collateral assets, and measures to remedy legal violations. - Communication and information technology measures to address liquidity difficulties. |
In the case of a credit institution already under early intervention facing a bank run, the credit institution must report to the State Bank on the bank run situation and review, assess the current situation to develop and adjust the remedial plan as prescribed in Article 158 and Article 160 of the Law on Credit Institutions 2024. The credit institution implements the developed and adjusted remedial plan.
Furthermore, the credit institution applies the following support measures when facing a bank run:
(1) Sell valuable papers to the State Bank in open market operations at an interest rate of 0%. (2) Conduct foreign exchange transactions with the State Bank to ensure liquidity as prescribed by the Governor of the State Bank. (3) Commercial banks, cooperative banks, people's credit funds, and microfinance institutions can borrow special loans from the State Bank; borrow special loans from deposit insurance organizations as prescribed by the law on deposit insurance; borrow special loans from other credit institutions. |
Vietnam: When will the Law on Credit Institutions 2024 come into force?
In the officially promulgated Law on Credit Institutions 2024, specifically Article 209 of the Law on Credit Institutions 2024 stipulates:
The Law on Credit Institutions 2024 comes into force from July 1, 2024, except for Clause 3, Article 200 and Clause 15, Article 210 of the Law on Credit Institutions 2024, which come into force from January 1, 2025. .
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