The Impact of Insolvency Law on Financial Stability

Tomas Rydl

Chapter Thematic Article 3 in CNB Financial Stability Report 2005, 2006, pp 93-101 from Czech National Bank, Research and Statistics Department

Abstract: This article takes as its central theme the development of insolvency law in relation to financial stability. While insolvency law does not constitute direct regulation of the financial market, it significantly affects the market and the way its participants behave. Quality insolvency law facilitates rapid exit of problem entities from the economic system and reduces the impacts of the losses incurred by insolvents on other businesses, households and financial institutions. Insolvency law therefore has an important role in terms of credit and systemic risk and directly affects the conditions for financial stability in the Czech economy. Moreover, it is a highly topical issue, because after many years of preparation the legislative process of adopting the new insolvency act is nearing an end.

Date: 2006
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