Maximising the developmental impact of MDB callable capital - Project findings and path forward

These two understandings of the nature of callable capital – one as a guarantee and the other as a unique type of capital – form the basis for the two options for incorporating its value into MDB capital adequacy frameworks described in Chapter 7. [...] • A transparent set of processes for triggering and implementing a capital call, including determining the amount of callable capital needed; timeframes to meet the call and the consequences of non-compliance; and arrangements to ring- fence resources for use only to repay creditors. [...] The need for MDB resilience to financial distress was recognised at the establishment of the World Bank in the 1940s with the creation of callable capital to give confidence to bond markets to lend to what was then a new type of development bank. [...] To reflect the contingent nature of the Tier 2 capital support, its contribution to MDB capital ratios could be capped – for example, up to 20–30% of the capital required to meet minimum capital ratios. [...] Realising the full potential benefits of callable capital will entail a programme of clarifications and reforms on the part of both shareholder governments and MDB management to generate evidence, agree on standards and incorporate callable capital into their capital adequacy frameworks, and to do so across the MDB system.