APCA is developing a Code of Conduct and Good Practice Guide to assist financial institutions in the remote event of a ‘retail run’ in Australia. A retail run is a panic or loss of confidence in a financial institution by its depositors that leads to a rush to withdraw deposits.
While the Australian finance system remained comparatively strong during the global financial crisis, some advanced economies witnessed retail runs of a scale not seen since the Great Depression, most notably the United Kingdom’s Northern Rock in 2007.
APCA’s project emerged from research and discussions involving the Australian Prudential Regulation Authority (APRA) and industry stakeholders on the benefits of an industry-developed approach to mitigating such an event were it to occur in Australia.
As explained by Charles Littrell, APRA’s Executive General Manager, Policy, Research and Statistics, “In light of international experience over the past few years, possessing an effective plan for dealing with a retail run is necessary for any authorised deposit-taking institution with substantial retail liabilities. APRA’s intent is to codify this requirement in the upcoming improvements to the liquidity prudential standard, but without imposing details on what constitutes a complying retail run policy. We are hopeful that APCA can develop a suitable industry guide to good practice, which defines the necessary details attaching to a good retail run response plan. This will necessarily expand beyond simple cash handling, to internal and external communications, and to electronic as well as branch distribution channels. Like many risks in the financial sector, a retail run is a remote but not outlandish possibility, and addressing this particular risk will require more than cursory thinking and preparation to develop an appropriate risk management plan.”
APCA’s Code of Conduct will establish agreed protocols for managing a retail run and for promoting industry and public confidence in the banking system. The accompanying Good Practice Guide will provide a practical reference tool for financial institutions when designing or benchmarking their individual business continuity plans and includes an industry crisis communications plan. Both will be available by the end of 2010.