2012/5 Developing Distress Resolution Procedures for Financial Institutions

Developing Distress Resolution Procedures for Financial Institutions
by Clas Wihlborg, Vienna, 2012, ISBN 978-3-902109-65-1

This paper focuses on the need for a lex specialis for resolution of insolvent banks and other financial institutions serving similar functions, and on requirements for making resolution procedures effective. After a review of the objectives of general insolvency law and the special characteristics of banks and the financial system, approaches to resolution procedures in a few 'model countries' are described. The issues that require attention in legislation for resolution procedures are identified as the contagion issue, the valuation issue, the predictability issue, the information issue, the coverage issue, the funding issue and the cross-border issue. Complementary reforms of the financial architecture that would enhance the effectiveness of legislation for resolution procedures are discussed as well.

1. Introduction
2. The role and efficiency of Corporate Insolvency Law
3. The special characteristics of banks. The need for lex specialis
4. New views of systemic risk. Are banks really special?
5. Can the market handle the insolvency of a large financial institution?
6. Approaches to bank insolvency
7. Key issues for bank insolvency legislation
8. The need for complementary reforms of financial regulation
9. Conclusions and ongoing international work on insolvency procedures

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Additional Info

  • Keywords: Bank insolvency, Crisis resolution, Contagion
  • JEL Codes: G01, G18, G28
  • ISBN No.: 978-3-9021-0965-1
  • Authors: Clas Wihlborg