Impact Story

One of FIRST’s first projects in the area of crisis preparedness took place in Morocco. Begun in December 2008 and completed in May 2009, the project assisted Morocco’s financial sector authorities—including Bank Al-Maghrib (Central Bank), the Deposit Insurer, the Securities Commission, and the Ministry of Economy and Finance—in developing a crisis protocol that enhances the government’s capacity to deal with financial distress or a potential systemic crisis.

Situation in the country prior to the project:

• no framework for crisis coordination intra- or inter-authority;
• no identified financial stability function;
• no mechanisms for sharing information or for assessing the systemic impact of problems;
• no Emergency Liquidity Assistance policy;
• Bank Al-Maghrib had some legal powers for bank resolution, but never applied them, and there were no operational procedures at place;
• no understanding of how the costs of a systemic problem would be shared between Ministry of Economy and Finance and Bank Al-Maghrib.

Exercise in May 2009 explored these issues with a scenario culminating in the failure of the third largest bank in the system. Heads of Morocco’s financial sector authorities (mentioned earlier) participated directly in the exercise with their respective senior management teams.

The crisis protocol developed after the simulation exercise outlined the need to increase the authorities’ ability to: (a) identify the data that would be required in a crisis and the methodology for collecting and disseminating those data; (b) set clear objectives for the outcomes that the authorities expect from their management of the crisis; (c) erect an assessment framework that includes a systematic approach for determining the systemic impact of a shock on financial stability; (d) define criteria for the choice of measures to be taken to resolve a crisis; and (e) manage external communications.

Furthermore, the crisis protocol helped the authorities to explore the adequacy of their current policies and procedures and to increase their ability to identify areas where improvements are needed. The protocol guided them in reviewing disclosure requirements, defining criteria for emergency liquidity assistance, setting objectives for optimal bank resolution, and designing a framework for cost/benefit analysis to support those objectives.