Discuss the rationale behind and functions of recently proposed "Resolution Corporation".
The Financial Resolution and Deposit Insurance, Bill 2017 proposed to establish Resolution Corporation. The Resolution Corporation would protect the stability and resilience of the financial system
Rationale behind Resolution Corporation:
Insurance firms in India are highly capitalized and unlikely to face bankruptcy, to prevent such situation Resolution corporation is proposed to monitor banks and other financial institutions on a regular basis
To protect financial sector companies
Some of the functions of the Resolution Corporation are
- Providing deposit insurance to banks. The main aim of the deposit insurance is to repay deposits to consumers in case of failure
- Classifying service providers such as banks and insurance companies based on their risk by consulting with respective regulators
- Protecting the consumers of covered obligations up to a reasonable limit when financial service providers are in distress.
- Resolution corporation also investigate the activities of service provider if the provisions of the bill are being contravened
- To monitor systemically important financial institutions (SIFI) and protect public funds to the extent possible
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