Rasheed said BNM views recovery plans as critical elements in crisis preparedness of the banking system, but banks must also ensure their plans are credible and operational during crises.

“In other words, careful planning, rather than the plan itself, is what ultimately provides confidence in the ability to respond and recover from a crisis,” he said in his keynote speech at the National Resolution Symposium 2024 here today.

“Industry must continuously review and refine its recovery plans, making sure it can be operationalised in a timely manner and understand how it interacts with the rest of the financial system to ensure risks are properly identified and mitigated.”

Drawing on insights from past financial crises, including recent banking issues in the US and Europe, Rasheed said analysing past financial crises helps institutions refine their recovery strategies.

“The crisis has also raised concerns about the effectiveness of loss-absorbing capital, including the treatment of credit clarity,” he said.

Rasheed said Malaysia will continue to monitor the global phasing out of additional Tier 1 capital instruments, as they currently account for less than 5% of total Tier 1 capital.

He also urged financial institutions to conduct regular testing of their plans to gauge how well they function in real-world situations.

“They (regular testing) will reinforce familiarity with the roles and responsibilities of individuals and teams during a crisis, allowing for more brief interaction times,” he said.

Rasheed also said crisis management in Malaysia must consider the unique requirements of both conventional and Islamic finance.

“Shariah compliance in recovery actions is vital to ensuring consistency with Islamic principles and avoiding legal and reputational risks,” he said.