Contingency planning is the process of preparing for potential emergencies, while crisis management is the overall management of emergencies when they do occur. A Crisis situation is where a financial institution (or a number of financial institutions) is not able, for whatever reasons, to meet its obligations, which may also impact smooth functioning of the financial system. Engaging in contingency planning prior to a crisis helps the supervisory authorities to prepare for possible crisis scenarios, identify skill requirements, and formulate policies and processes required for tackling such challenging situations. Successful crisis management involves coordinated efforts on the part of all stakeholders to limit impact and damage and restore operations back to normal with minimum of disruption.
In light of powers derived from Banking Companies Ordinance 1962 and SBP Act 1956, SBP can take remedial actions for rehabilitation and reorganization of problem banks. SBP has also developed Problem bank management framework, which sets forth the mechanism to deal with the problem banks.
SBP has put in place coordination mechanism with other regulators. To discuss and resolve financial system issues, State Bank of Pakistan and Securities & Exchange Commission of Pakistan (regulator of NBFCs) engage through a high level coordination committee which holds periodic meetings. SBP has also signed MoUs with SECP for exchange of information.