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Bankruptcy and reorganization procedures for cross-border banks in the EU: Towards an integrated approach to the reform of the EU safety net

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Author Info

  • Gillian G.H. Garcia
  • Rosa M. Lastra
  • María J. Nieto
Registered author(s):

    Abstract

    Purpose – The purpose of this paper is to examine the complexities of reorganizing and/or liquidating troubled banks under the European Union's (EU) current institutional framework as it is defined by its directives and by national supervisory, remedial, and insolvency practices. Design/methodology/approach – The paper compares provisions of different EU directives that impact financial institutions and summarizes national remedial practices. Findings – The paper documents the diversity that currently exists among national supervisory, remedial and failure resolution practices for banks. It also assesses the economic efficiency of the institutional framework for resolving problem banks that is defined by the Reorganization and Winding-up Directive and identifies components of the directive that can hamper efficient cross-border resolutions. Research limitations/implications – There is a deficiency in publicly available information on EU member countries' practices for disciplining and resolving troubled banks. Practical implications – The paper assesses issues/conditions that can hamper efficient cross-border resolutions – issues on which policymakers should focus when they reform the current framework. It also explores areas of coordination with other EU directives that deal with financial crisis management that are relevant in the current financial crisis. Originality/value – The paper makes policy recommendations for reforming the EU's current institutional framework for resolving troubled banks.

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    File URL: http://www.emeraldinsight.com/journals.htm?issn=1358-1988&volume=17&issue=3&articleid=1800813&show=abstract
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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Journal of Financial Regulation and Compliance.

    Volume (Year): 17 (2009)
    Issue (Month): 3 (July)
    Pages: 240-276

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    Handle: RePEc:eme:jfrcpp:v:17:y:2009:i:3:p:240-276

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    Web page: http://www.emeraldinsight.com

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    Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
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    Web: http://www.emeraldinsight.com/jfrc.htm

    Related research

    Keywords: Bankruptcy; Banks; European Union; Financial institutions; International economics;

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Lastra, Rosa Maria, 2006. "Legal Foundations of International Monetary Stability," OUP Catalogue, Oxford University Press, number 9780199269341.
    2. María J. Nieto & Garry J. Schinasi, 2008. "EU framework for safeguarding financial stability: Towards an analytical benchmark for assessing its effectiveness," Banco de Espa�a Occasional Papers 0801, Banco de Espa�a.
    3. International Monetary Fund, 2008. "Cross-Border Coordination of Prudential Supervision and Deposit Guarantees," IMF Working Papers 08/283, International Monetary Fund.
    4. Mayes, David G. & Nieto, María J. & Wall, Larry, 2008. "Multiple safety net regulators and agency problems in the EU: Is Prompt Corrective Action partly the solution?," Journal of Financial Stability, Elsevier, vol. 4(3), pages 232-257, September.
    5. Gillian G. H. Garcia & Maria J. Nieto, 2007. "Preserving Financial Stability: A Dilemma For The European Union," Contemporary Economic Policy, Western Economic Association International, vol. 25(3), pages 444-458, 07.
    6. George P. Kaufman, 2004. "FDIC losses in bank failures: has FDICIA made a difference?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q III, pages 13-25.
    7. George G. Kaufman, 2004. "Depositor Liquidity and Loss Sharing in Bank Failure Resolutions," Contemporary Economic Policy, Western Economic Association International, vol. 22(2), pages 237-249, 04.
    8. Robert A. Eisenbeis & Larry D. Wall, 2002. "The major supervisory initiatives post-FDICIA: Are they based on the goals of PCA? Should they be?," Working Paper 2002-31, Federal Reserve Bank of Atlanta.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:
    1. Maria J. Nieto & Gillian G. Garcia, 2012. "The insufficiency of traditional safety nets: what bank resolution fund for Europe?," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 20(2), pages 116-146, May.
    2. Larry D. Wall, 2010. "Prudential discipline for financial firms: micro, macro, and market structures," Working Paper 2010-09, Federal Reserve Bank of Atlanta.
    3. Hagendorff, Jens & Hernando, Ignacio & Nieto, Maria J. & Wall, Larry D., 2012. "What do premiums paid for bank M&As reflect? The case of the European Union," Journal of Banking & Finance, Elsevier, vol. 36(3), pages 749-759.
    4. Maria J. Nieto & Gillian G. Garcia, 2012. "The Insufficiency of Traditional Safety Nets: What Bank Resolution Fund for Europe?," FMG Special Papers sp209, Financial Markets Group.
    5. Matej Marinc & Razvan Vlahu, 2011. "The Economic Perspective of Bank Bankruptcy Law," DNB Working Papers 310, Netherlands Central Bank, Research Department.

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