O Tell Me The Truth About Bail-In: Theory and Practice

87 Pages Posted: 11 Mar 2019 Last revised: 16 Mar 2019

See all articles by Marco Ventoruzzo

Marco Ventoruzzo

Pennsylvania State University, Penn State Law; Bocconi University - Department of Law

Giulio Sandrelli

Bocconi University - Department of Law

Date Written: February 27, 2019

Abstract

This Article analyzes the functioning of the European regulatory approach to the crisis of credit institutions, in the framework of EU banking supervision and in light of its early applications, with a special focus on bail-in. We investigate how the new resolution mechanisms — rooted in the principle of private sector involvement in banking restructurings — have inter-played with legal and institutional contexts still characterized by an attitude to bail-out rescues and by non-harmonized national insolvency rules. We show how and well-experimented restructuring tools have influenced the application of the new ones and, in many cases, have emphasized the defects, pitfalls and inconsistencies of the new regime, suggesting paths for reform. The Article is organized as follows. Part II sets out a summary of the common regime applicable to credit institutions within the EU, based on harmonized requirements for capital and liquidity. Part III focuses on the pre-crisis and crisis tools, as spelled out in the Bank Recovery and Resolution Directive ("BRRD"), in coordination with bordering regulatory areas, such as the regimes applicable to the liquidation of insolvent banks and State aids in the context of banking rescues. After a brief comparison with the US system (Part IV), we dwell, in Part V, on the practice of restructurings, before and after the BRRD. We specifically discuss two cases (the resolution of Banco Popular Español and the liquidation of Italian “Banche Venete”) that, in our view, illustrate very well the pros and cons of the new regime. Part VI concludes offering some suggestions for possible reform.

Keywords: bail-in, BRRD, insolvency, banking law, CRD IV, Basel, ECB, Single Supervisory Mechanism, Single Resolution Mechanism, State Aid

JEL Classification: K22

Suggested Citation

Ventoruzzo, Marco and Sandrelli, Giulio, O Tell Me The Truth About Bail-In: Theory and Practice (February 27, 2019). Bocconi Legal Studies Research Paper; European Corporate Governance Institute (ECGI) - Law Working Paper No. 442/2019. Available at SSRN: https://ssrn.com/abstract=3343324 or http://dx.doi.org/10.2139/ssrn.3343324

Marco Ventoruzzo (Contact Author)

Pennsylvania State University, Penn State Law ( email )

Lewis Katz Building
University Park, PA 16802
United States

HOME PAGE: https://law.psu.edu/faculty/ventoruzzo

Bocconi University - Department of Law ( email )

Via Roentgen, 1
Milan, 20136
Italy

Giulio Sandrelli

Bocconi University - Department of Law ( email )

Via Roentgen, 1
Milan, 20136
Italy

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