Table of Contents

Research Handbook on Crisis Management in the Banking Sector

Research Handbook on Crisis Management in the Banking Sector

Research Handbooks in Financial Law series

Edited by Matthias Haentjens and Bob Wessels

In this timely Handbook, over 30 prominent academics, practitioners and regulators from across the globe provide in-depth insights into an area of law that the recent global financial crisis has placed in the spotlight: bank insolvency law.

Chapter 5: The EU resolution toolbox

Michael Schillig

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

Extract

Virtually all systemically important financial institutions (‘SIFIs’) are organized as globally active financial conglomerates with highly complex organizational structures consisting of hundreds if not thousands of subsidiaries and branches in many countries. Operations will often be wholly or partly centralized including intra-group financing arrangements and capital, liquidity and risk management, and technological and IT support provided to the group as a whole. Whereas supervision may be consolidated at the level of the parent entity, the mechanisms to deal with a banking group in financial distress are predominantly territorial in nature. Thus, SIFIs are ‘international in life, but national in death’. Ideally, global SIFIs should be subject to a single and uniform resolution process controlled by the authority of the country where the SIFI is headquartered (universal approach). Depositors and other creditors of the same class would be treated equally, wherever located. In practice, however, national authorities are more likely to adopt a territorial approach, ring-fencing the assets within their jurisdiction for the benefit of local depositors, creditors and taxpayers, with no regard for the negative externalities imposed on group entities in other countries. Against the background of increasing cross-border financial integration, the goal of maintaining financial stability clashes with a desire to preserve national sovereignty and autonomy. What can be achieved realistically may be some form of enhanced cooperation and coordination between national authorities, including a fair allocation of the financial burden of resolution (modified universalism/territorialism).

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