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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

Author

Listed:
  • Gillian G.H. Garcia
  • Rosa M. Lastra
  • María J. Nieto

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.

Suggested Citation

  • Gillian G.H. Garcia & Rosa M. Lastra & María J. Nieto, 2009. "Bankruptcy and reorganization procedures for cross-border banks in the EU: Towards an integrated approach to the reform of the EU safety net," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 17(3), pages 240-276, July.
  • Handle: RePEc:eme:jfrcpp:v:17:y:2009:i:3:p:240-276
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    References listed on IDEAS

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    1. Robert A. Eisenbeis & Larry D. Wall, 2002. "The major supervisory initiatives post-FDICIA: Are they based on the goals of PCA? Should they be?," FRB Atlanta Working Paper 2002-31, Federal Reserve Bank of Atlanta.
    2. Larry Wall & Maria Nieto, 2006. "Precondition for a Successful Implementation of Supervisors' Primpt Corrective Action: Is There a Case for a Banking Standard in the EU?," FMG Special Papers sp165, Financial Markets Group.
    3. Barth,James R. & Caprio,Gerard & Levine,Ross, 2008. "Rethinking Bank Regulation," Cambridge Books, Cambridge University Press, number 9780521709309.
    4. Rosa Maria Lastra, 2003. "Cross-Border Bank Insolvency: Legal Implications in the Case of Banks Operating in Different Jurisdictions in Latin America," Journal of International Economic Law, Oxford University Press, vol. 6(1), pages 79-110, March.
    5. 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.
    6. María Nieto & Garry J. Schinasi, 2007. "EU Framework for Safeguarding Financial Stability; Towards an Analytical Benchmark for Assessing its Effectiveness," IMF Working Papers 07/260, International Monetary Fund.
    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, April.
    8. 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, July.
    9. Eva H. G. Hüpkes, 2005. ""Too Big to Save" — Toward a Functional Approach to Resolving Crises in Global Financial Institutions," World Scientific Book Chapters,in: Systemic Financial Crises Resolving Large Bank Insolvencies, chapter 14, pages 193-215 World Scientific Publishing Co. Pte. Ltd..
    10. Lastra, Rosa Maria, 2006. "Legal Foundations of International Monetary Stability," OUP Catalogue, Oxford University Press, number 9780199269341.
    11. International Monetary Fund, 2008. "Cross-Border Coordination of Prudential Supervision and Deposit Guarantees," IMF Working Papers 08/283, International Monetary Fund.
    12. George G. 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.
    13. El-Agraa,Ali (ed.), 2007. "The European Union," Cambridge Books, Cambridge University Press, number 9780521874434.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Wall, Larry D., 2009. "Prudential Discipline for Financial Firms: Micro, Macro, and Market Structures," ADBI Working Papers 176, Asian Development Bank Institute.
    2. 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.
    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. repec:pal:jbkreg:v:19:y:2018:i:1:d:10.1057_s41261-017-0056-x is not listed on IDEAS
    5. 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.
    6. Matej Marinc & Razvan Vlahu, 2011. "The Economic Perspective of Bank Bankruptcy Law," DNB Working Papers 310, Netherlands Central Bank, Research Department.
    7. Nieto, Maria J. & Wall, Larry D., 2015. "Cross-border banking on the two sides of the Atlantic: does it have an impact on bank crisis management?," FRB Atlanta Working Paper 2015-11, Federal Reserve Bank of Atlanta.

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