The need for a special resolution regime in Kuwait

Mohammad Nayef Al-Dabbous

The events of the Global Financial Crisis (GFC) in 2007-2009 revealed fragility in the financial system, even within the largest financial institutions. The financial difficulties faced by these institutions caused panic and anxiety among governments and regulators, as they feared that letting these institutions enter into normal insolvency procedures would transmit financial distress to other institutions. ¹ The bank resolution system enables regulators to resolve and restructure a failed bank without affecting the financial system and reduces the costs for taxpayers or government funds. ² However, financial crises, including a banking crisis, are considered a challenge to decision makers and regulators, as they appear without warning and develop rapidly unless dealt with quickly and decisively. "Sound banking is essential for maintaining monetary and financial stability." ³ Preventing financial crises and decreasing and minimising risks of financial issues that occur from time to time are designed to achieve financial stability. Systemic risk is real and can be defined as the financial difficulties in a particular institution that could spread to many other institutions and disrupt the whole financial system. The fear is that a problem in some institutions might spread to others, bringing the entire system to an abrupt stop.