Shadow Resolutions as a No-No in a Sound Banking Union

E. Faia, A. Hackethal, M. Haliassos and K. Langenbucher (eds.), Financial Regulation. A Transatlantic Perspective, Cambridge University Press, 150-166, 2015

25 Pages Posted: 1 Oct 2015 Last revised: 14 Oct 2015

See all articles by Luca Enriques

Luca Enriques

University of Oxford Faculty of Law; European Corporate Governance Institute (ECGI)

Gerard Hertig

ETH Zurich; European Corporate Governance Institute (ECGI)

Date Written: 2015

Abstract

The credit crisis has generated much debate on the bailout or resolution of larger banks. By contrast, little attention has been paid to resolution procedures being generally circumvented when it comes to smaller banks. We describe how supervisory leniency and political considerations often result in public officials nudging viable banks into acquiring smaller, failing banks and show how this weakens supervision, distorts competition, and gives resolution a bad name. Recent reforms have provided EU authorities with significant incentives to follow formal resolution procedures rather than to operate in their shadow, but this is much less the case at the member state level. We propose a step-by-step approach to get national authorities to subject smaller banks to timely resolution, especially in ‘good’ non-financial crisis times.

Keywords: Bank Resolution, Banking Union, Single Supervisory Mechanism, Single Resolution Mechanism, Shadow Resolution, National Competent Authorities, Supervisory Forbearance

JEL Classification: G21, G33, K23

Suggested Citation

Enriques, Luca and Hertig, Gerard, Shadow Resolutions as a No-No in a Sound Banking Union (2015). E. Faia, A. Hackethal, M. Haliassos and K. Langenbucher (eds.), Financial Regulation. A Transatlantic Perspective, Cambridge University Press, 150-166, 2015. Available at SSRN: https://ssrn.com/abstract=2666900

Luca Enriques (Contact Author)

University of Oxford Faculty of Law ( email )

St Cross Building
St Cross Road
Oxford, OX1 3UL
United Kingdom

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http:/www.ecgi.org

Gerard Hertig

ETH Zurich ( email )

IFW E 49
Haldeneggsteig 4
CH-8092 Zurich
Switzerland
+4144-632-4008 (Phone)
+4144-632-1097 (Fax)

HOME PAGE: http://www.hertig.ethz.ch

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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