Judicial and Administrative Approached to Bank Resolution: Prospects for International Harmonization

The financial crisis of 2007-08 brought the world economy to the brink of collapse. If policymakers hope to avoid a repeat of these events, they must design and implement enhanced procedures for resolving systemically important financial institutions. Doing so is challenging enough at the national level, with the rise of complex financial groups; however, the increased internationalization of financial activity in recent years presents an even more difficult set of problems at the global level. Effectively resolving cross-border financial institutions will require, at a minimum, the harmonization of bank resolution procedures across core countries. Given that major banking countries are roughly split on the use of general bankruptcy codes ("judicial") and special resolution regimes ("administrative") to resolve financial institutions, it is worthwhile to ask which of these two approaches-judicial or administrative-is more conducive to international harmonization. This paper examines this question by analyzing key features of national bankruptcy codes in France, Germany, Japan, Switzerland, the U.S., and the U.K. This analysis reveals fundamental differences in terms of both procedures and results, which undermine the ability of judicial regimes to converge internationally. Therefore, the recent move toward special resolution regimes should be a welcome one.