Necessary but Not Sufficient: Stay Upon Resolution via Bail-In

Butterworths Journal of International Banking and Financial Law (April 2020): pp. 235-238

4 Pages Posted: 24 Apr 2020

See all articles by Thomas Huertas

Thomas Huertas

Goethe University Frankfurt - Institute of Law and Finance; Center for Financial Studies

Michael Huertas

Dentons (Washington, D.C.)

Date Written: March 31, 2020

Abstract

The bail-in tool for the resolution of failing banks depends critically on suspending the right of counterparties to terminate qualified financial contracts (QFCs) such as derivatives and repos. In theory, the stay provides the resolution authority with the time necessary to recapitalise and stabilise the failing bank, so that the bank in resolution can operate “normally” upon reopening.

In practice, the stay is likely to be insufficient. It is neither unconditional, nor uniform, nor comprehensive. Above all, it is temporary. Upon reopening, counterparties are likely to refuse to roll over maturing obligations as well as demand additional collateral for QFCs that remain outstanding. Policymakers must therefore ensure that the bank-in-resolution has access to adequate liquidity upon reopening.

Keywords: Banking, resolution, bail-in, stay upon resolution

JEL Classification: G21, G28

Suggested Citation

Huertas, Thomas and Huertas, Michael, Necessary but Not Sufficient: Stay Upon Resolution via Bail-In (March 31, 2020). Butterworths Journal of International Banking and Financial Law (April 2020): pp. 235-238. Available at SSRN: https://ssrn.com/abstract=3564870

Thomas Huertas (Contact Author)

Goethe University Frankfurt - Institute of Law and Finance ( email )

Campus Westend - Grüneburgplatz 1
Frankfurt, 60323
Germany

Center for Financial Studies ( email )

Grüneburgplatz 1
Goethe University
Frankfurt am Main, 60323
Germany

Michael Huertas

Dentons (Washington, D.C.) ( email )

United States

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