Rivalry in Resolution. How to reconcile local responsibilities and global interests?

Eva Hüpkes ()

European Company and Financial Law Review, 2010, vol. 7, issue 2, 216-239

Abstract: This paper proposes a cooperative international framework for the resolution of large globally active financial institutions. The framework builds on and complements the principles of the Basel Concordat. It consists of three steps: (1) First, national authorities examine how responsibilities for supervision, regulation and resolution of the institution operating in their jurisdiction are allocated and whether or not relevant home/host jurisdictions have in place an effective resolution regime that meets internationally agreed minimum standards. Such minimum standards would relate to the existence of adequate early intervention and restructuring powers, robust and credible firm-specific recovery and resolution plans, and a transparent and predictable mechanism for the allocation of losses. (2) Second, national authorities evaluate the implications of the arrangements in different jurisdictions for financial stability in their own jurisdiction in the event of the failure and resolution of the institution. In doing so, they pay particular regard to whether creditors in their jurisdiction would be treated equitably and in line with “best interest” and “national treatment” principles, whether critical financial functions in their jurisdiction can be preserved and whether the costs of resolution and moral hazard are contained. (3) Third, on the basis of these assessments, national authorities determine whether further action is needed to reduce the probability and impact of failure. If such a determination was made, they would apply additional prudential or structural requirements for cross-border operations (e. g., require separate incorporation and stand-alone capacity; greater structural separation of activities, stricter intra-group exposure limits, higher capital and liquidity requirements).

Date: 2010
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DOI: 10.1515/ecfr.2010.216

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