If the activities of financial intermediaries, markets or market infrastructures are disrupted for any reason, public authorities may have to intervene. The objective of crisis management and resolution is to ensure that problems in the financial system, especially in banks, do not result in high social costs, in terms of financial instability or fiscal burdens.
The toolbox of measures in an effective crisis management and resolution framework should include preparatory and preventative measures, such as a requirement for institutions and authorities to prepare recovery and resolution plans to ensure adequate planning for individual bank failures or wider financial stress. Public authorities should also have the powers to take action to remedy problems in banks before they become severe or to apply appropriate resolution tools to handle failing banks in an orderly manner, with a view to avoiding contagion, maintaining the stability of, and public confidence in, the financial system as well as protecting depositors and public funds.
In exceptional circumstances, the central bank may also have to step in by acting as lender of last resort through the provision of emergency liquidity assistance to a solvent financial institution or a group of financial institutions facing liquidity problems.