International Coordination in Cross-Border Bank Bail-Ins: Problems and Prospects

35 Pages Posted: 24 Jan 2017 Last revised: 13 Jul 2018

See all articles by Federico Lupo-Pasini

Federico Lupo-Pasini

Durham Law School

Ross P. Buckley

University of New South Wales (UNSW) - Faculty of Law

Date Written: June 1, 2015

Abstract

Bail-in is quickly becoming a predominant approach to banking resolution. The EU Bank Recovery Resolution Directive and the US Federal Deposit Insurance Corporation’s single point of entry strategy envisage creditors’ recapitalisations to resolve a failing financial institution. However, this legislation focuses on the domestic aspects of bail-in, leaving the question of how it is applied to a cross-border banking group open. Cross-border banking resolution has been historically subject to coordination failures, which have resulted in disorderly resolutions with dangerous systemic effects.

The goal of this article is to assess whether bail-in is subject to the same coordination problems that affect other resolution tools, and to discuss the logic of international legal cooperation in bail-in policies. We demonstrate that, in spite of the evident benefit in terms of fiscal sustainability, bail-in suffers from complex coordination problems which, if not addressed, might lead to regulatory arbitrage and lengthy court battles, and, ultimately, may disrupt resolutions. We argue that only a binding legal regime can address those problems. In doing so, we discuss the recent Financial Stability Board’s proposal on cross-border recognition of resolution action, and the role of international law in promoting cooperation in banking resolution.

Keywords: Bail-in, Resolution, Bailout, Cross-border bank supervision, Bankruptcy, Regulatory arbitrage

Suggested Citation

Lupo-Pasini, Federico and Buckley, Ross P., International Coordination in Cross-Border Bank Bail-Ins: Problems and Prospects (June 1, 2015). European Business Organization Law Review, Vol. 16, No. 2, 2015; UNSW Law Research Paper No. 17-12. Available at SSRN: https://ssrn.com/abstract=2903033

Federico Lupo-Pasini (Contact Author)

Durham Law School ( email )

50 North Bailey
Palatine Centre
Durham, County Durham DH1 3ET
United Kingdom

Ross P. Buckley

University of New South Wales (UNSW) - Faculty of Law ( email )

Sydney, New South Wales 2052
Australia

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