The resolution of cross-border banks: Issues for deposit insurers and proposals for cooperation
This paper reviews critical legal and policy issues created by cross-border banking insolvencies. These include (I) Insolvency principles, such as (1) criteria for intervention; (2) deposit insurance; (3) power to manage; (4) ability to maximize recoveries. Also included is (II) International legal complications. Critical issues in cross-border crisis management involve: (1) division of labor between home and host countries; (2) the availability of information; (3) the legal, regulatory and supervisory framework; (4) the law governing initiation of proceedings; (5) grounds for intervention; (6) deposit insurance; (7) legal powers of controlling authorities; (8) the potential financial and economic effects. We conclude with a few proposals for cooperation.
Corporate Governance and Intra-Group Transactions in European Bank Holding Companies During the Crisis
In this paper we study the intra-group transactions between the parent bank and its foreign subsidiaries in European Union countries during the crisis. We use hand-collected data from annual statements on related party transaction and find that they may create a serious problem for the stability of the foreign banks' subsidiaries. Moreover, as some of those subsidiary banks were large by assets in some of the member states the related party transactions with the parent bank created a serious threat to host countries financial system stability. We attribute this transaction to weak governance in foreign subsidiaries. We suggest improvements in governance as well greater disclosure of related party transactions in bank holding companies in Europe.
Cross-border banking and financial stability in the EU
Abstract This paper examines the implications that alternative regulatory structures may have for resolving failed banking institutions. Emphasis on the European Union (EU), which is both economically and financially large and has several features relating to cross-border banking in the form of direct investment that may heighten the problems we consider. To ensure the efficient resolution of bank failures with minimum, if any, credit and liquidity losses a four step program should be followed. This includes prompt legal closure of institutions before they become economically insolvent, prompt identification of claims and assignment of losses, prompt reopening of failed institutions, and prompt re-capitalizing and re-privatization of failed institutions. These policies together with a prompt corrective action system could be voluntarily adopted through the use of deposit insurance premium discounts as an incentive.