Table of Contents

Managing Risk in the Financial System

Managing Risk in the Financial System

Edited by John Raymond LaBrosse, Rodrigo Olivares-Caminal and Dalvinder Singh

Managing Risk in the Financial System makes important and timely contributions to our knowledge and understanding of banking law, financial institution restructuring and related considerations, through the production of an innovative, international and interdisciplinary set of contributions which link together the law and policy issues surrounding systemic risk and crisis management.

Chapter 17: From Consolidated Supervision to Consolidated Resolution

Rosa M. Lastra and Rodrigo Olivares-Caminal

Subjects: economics and finance, financial economics and regulation, money and banking, law - academic, finance and banking law

Extract

Rosa M. Lastra and Rodrigo Olivares-Caminal 17.1. INTRODUCTION Consolidated supervision has become a premise for global banking as complex financial institutions increasingly expand the range of their services offered in several countries. However, the financial crisis of 2007–09 has shown that consolidated supervision is not enough; it needs to be aligned with a more effective resolution process. Though efforts are under way at the international level, with both the International Monetary Fund (IMF) and the Basel Committee on Banking Supervision Cross-Border Bank Resolution Group working to develop a cross-border resolution framework,1 the lack of an effective consolidated resolution framework poses a challenge to the future of global banking and finance. That form of supervision is based on the assumption that financial groups form a single economic entity. However, with respect to the resolution of a failed multinational bank, or of a complex financial group with different units performing different activities which include various legal entities (i.e. subsidiaries) incorporated in various jurisdictions, the assumption that financial groups form a single economic entity cannot be said to be a legal reality. In a bankruptcy scenario, a financial group is typically split up into its various components or into various legal entities who are subjected to the insolvency laws of the jurisdiction where they have been incorporated. Even foreign branches of multinational banks or companies are some times liquidated and treated as separate units. Consolidated or married in life, single when they pass away, that is the current reality. In recent...

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