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

Federico Lupo Pasini, Ross Buckley

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)203-226
Number of pages24
JournalEuropean Business Organisation Law Review
Volume16
Issue number2
Early online date02 Jun 2015
DOIs
Publication statusPublished - Jun 2015

Keywords

  • Bail-in
  • bank resolution
  • international coordination
  • banking crises
  • financial regulation

ASJC Scopus subject areas

  • Finance
  • Law

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