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Cross-border resolution of failed banks in the EU: A search for the second-best policies

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  • Zdenek Kudrna
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    Abstract

    This paper analyzes the reasons for the failure of the multilateral resolution of EU cross-border banks such as Fortis. We argue that the pre-crisis regime based on soft law and voluntary coordination was unable to align the incentives of national authorities acting under the time pressure and uncertainty of a banking crisis. We ask whether this experience induced the Commission to propose reforms that would close the regulatory gap between integrated cross-border banks and national resolution regimes. Although, the Commission proposals submitted within a year of the crisis considered the more radical reform options, such as shifting the regime to the EU level or reorganizing cross-border banks so that they could be resolved on the national level, in the end the Commission supported the traditional reform path of deepening soft law and strengthening pre-crisis governance arrangements. At the same time, the new financing mechanisms introduced to stabilize the Eurozone can pave the way for the introduction of an EU-level bank resolution regime, when the next reform opportunity arises.

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    Bibliographic Info

    Paper provided by Institute for European integration research (EIF) in its series Working Papers of the Vienna Institute for European integration research (EIF) with number 8.

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    Date of creation: 15 Nov 2010
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    Handle: RePEc:erp:eifxxx:p0016

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    Web page: http://www.eif.oeaw.ac.at

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    Keywords: political science; European Commission;

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    1. Pisani-Ferry, Jean & Sapir, André, 2010. "Banking crisis management in the EU: an early assessment," Economics Papers from University Paris Dauphine 123456789/12379, Paris Dauphine University.
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