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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

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.

Suggested Citation

  • Zdenek Kudrna, 2010. "Cross-border resolution of failed banks in the EU: A search for the second-best policies," Working Papers of the Vienna Institute for European integration research (EIF) 8, Institute for European integration research (EIF).
  • Handle: RePEc:erp:eifxxx:p0016
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    References listed on IDEAS

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    1. Jean Pisani-Ferry & André Sapir, 2010. "Banking crisis management in the EU: an early assessment," Economic Policy, CEPR;CES;MSH, vol. 25, pages 341-373, April.
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    Keywords

    political science; European Commission;

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