Transcript Presentation - Peter Brierley Bank of England

Session V: Insolvency
Resolution
Peter Brierley
Bank of England
1
Introduction
• What these papers are about:
- OPTIMAL RESOLUTION OF SYSTEMIC BANKS
• Objective of Authorities:
- ORDERLY AND EFFICIENT RESOLUTION
2
Orderly and efficient resolution
of systemic banks
•
Key Requirements
(1)
(2)
(3)
(4)
(5)
(6)
Limit risks to financial stability
Maximise bank’s franchise
Preserve continuity of contractual arrangements
Penalise bank management and shareholders
Treat creditors equitably
Reimburse insured depositors rapidly
3
Preservation of Financial Stability
• Balance between maintaining financial stability and
limiting moral hazard
– Too big to fail (Lastra, Mayes)
– Constructive ambiguity versus transparency (Nieto and Wall)
• Need for pre-emptive strike prior to insolvency
–
–
–
–
PCA/SEIR (Nieto and Wall)
Pre-insolvency workout
Role of financial authorities
But inconsistency with insolvency regime and/or company law.
4
Preservation of Financial Stability
•
Preserve the Bank’s systemic activities
–
–
Not the same as rescuing the bank
Hupkes’ (2004) options:
(1) Replacement
(2) Detachment
(3) Immunisation
–
Key problem area: termination/close out rights
5
Separate regime for systemic
bank insolvency?
• Distinguishing features of large bank failure
– potential disruption to payment and settlement
systems
– losses to creditors via interbank markets
– creditors include large numbers of depositors unable
to mitigate risks or bear losses
– dangers of systemic crises via contagion
6
Separate Regime for systemic bank
insolvency?
• Key Advantages (Nieto and Wall)
– Clarity
– Avoids tendency to forbearance
– Greater role/powers of financial authorities,
eg in effecting business transfers
– Avoidance of potential conflicts between
financial authorities and insolvency officials
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Separate regime for systemic
bank insolvency?
• Issues/problems
– pre-specified triggers
– substantial legislative changes required in countries
which resolve banks using corporate insolvency
regime
– court-based insolvency procedures emphasise
equitable treatment of creditors
• Compromise solution
– mixed regime
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Resolving a systemic bank with
international operations
•
•
Identified as major issue by Lastra and Mayes
Key issues/problems
(1)
(2)
(3)
(4)
(5)
The structure of international banks
Subsidiaries versus branches (Lastra)
Single versus separate entity resolution (Lastra)
Home/host country conflicts of interest (Mayes)
Lack of enforceability of financial contract law
across jurisdictions
(6) Difficulty of preserving global financial stability
(7) Issues even more complex with LCFIs (Mayes)
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Resolving a systemic bank with
international operations
• Possible Solutions
– Need to avoid imposing economically inefficient
constraints on international banks
– Many suggested solutions would require changes to
legislation or, in EU, to existing directives
– Bilateral deals not really an option
– Supranational authorities: not (yet) practical politics
– Improved cross-border co-operation the only realistic
current option
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