SBP Named Resolution Authority to Oversee Failing Banks and Safeguard Depositors

The State Bank of Pakistan (SBP) has taken a major step to strengthen the country’s financial stability regime by establishing a dedicated department to handle distressed banks and financial institutions.

This move follows recent amendments to the Banking Companies Ordinance (BCO), 1962, which officially designate SBP as the “resolution authority” for banks and other specified institutions.

The newly formed Financial Institutions Resolution Department (FIRD) will be responsible for the orderly resolution of troubled banks, including Microfinance Banks (MFBs) and Development Finance Institutions (DFIs).

The goal is to ensure that if a bank faces serious trouble, there’s a clear, pre-planned process to manage its resolution without causing panic or instability in the financial system.

Resolution Planning Now Mandatory

As part of this new framework, SBP has issued broad guidelines requiring all banks to prepare detailed “resolution plans.” These plans are essentially blueprints for how a bank would be wound down or restructured in the event of a crisis, ensuring that critical functions continue and depositors are protected.

Banks have been instructed to designate a senior official, preferably the Chief Risk Officer (CRO) or Chief Financial Officer (CFO), to coordinate all resolution planning activities and act as the main point of contact with SBP’s FIRD.

Strict Deadlines and Ongoing Updates

The first set of required information must be prepared based on the banks’ position as of December 31, 2025, with a confirmation to be sent to SBP by April 30, 2026. After that, banks are expected to update their information at least once a year, or more frequently if there are significant changes in their operations or group structure.

SBP has also reserved the right to demand updated information from any bank at any time, signaling a more hands-on approach to monitoring the health of the financial sector.

Detailed Information for Financial Functions

The central bank has asked financial institutions to provide detailed information across five main areas:

• Deposits – including retail, corporate, and government accounts;
• Lending and loan servicing- covering corporate, SME, consumer, and agriculture loans;
• Payments, clearing, custody, and settlement – such as cash services and both retail and wholesale settlements;
• Wholesale funding markets – including securities financing, wholesale lending, and securities lending;
• Capital markets and investments – covering debt and other securities, asset management, and insurance.

Why This Matters

The move brings Pakistan in line with international best practices, where central banks and regulators have clear authority and plans in place to deal with failing financial institutions. By requiring banks to plan ahead and share critical information, SBP aims to minimize the risk of disorderly collapses that could threaten the economy.

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The State Bank of Pakistan (SBP) has taken a major step to strengthen the country’s financial stability regime by establishing… Read More

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