When should a bank enter resolution and through which mechanism could an insufficiently solvent bank be returned to balance sheet stability : With particular emphasis on Swedish rules

University essay from Uppsala universitet/Juridiska institutionen

Abstract:

The recent global financial crisis highlighted the need for a special (lex specialis) resolution

regime for distressed financial institutions both at the national and international level.

Resolution, which is an alternative to general corporate insolvency proceedings, provides a

means of restructuring or winding-up a bank that is failing and whose failure could create

concerns as regards the general public interest.

This thesis discusses when a bank should enter resolution and through which mechanism an

insufficiently solvent bank can be returned to balance sheet stability. Particular emphasis is

placed on Swedish rules. Firstly, it discusses the role and efficiency of corporate insolvency law

and the special characteristics of banks. It then analyses the features of the European

Commission’s draft proposal for a Crisis Management Directive, and the resolution regimes in

the US, and the UK. Moreover, it analyses the Swedish Government Support to Credit

Institutions Act which was enacted in October 2008, and provides the Government, or the

designated resolution authority, with a large toolbox to deal with distresses systemically

important institutions (SIFIs). Also, it examines how failed or failing non-systemically

important financial institutions are handled in Sweden. Finally, it provides a proposal for a

regulatory reform of the Support Act that would enhance effectiveness and provide better

predictability.

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