Any policy aimed at resolution of a banking crisis determines which constituents – depositors, creditors, shareholders, the banking industry, and society as a whole – eventually bear the costs associated with a banking crisis, thus giving rise to legitimacy and accountability concerns. Rather than what the recent financial crisis has engendered – mostly ad hoc reactions that socialize losses but not profits – what is required, this incisive analysis shows, is an equitable and viable resolution framework, based on burden sharing, enshrined in law, and designed to deal with bank failures in a way that balances private and public interests. The author explores the design, institutional framework, and practical functioning of such a legal regime under EU law. In the process she discusses such issues as the following:
- the systemic risk of bank failure;
- exit regimes for failing banks and banking groups;
- difficulties produced by the increasing cross-border activities and interconnectedness of the banking sector;
- resolution tools to minimize the losses of the official sector;
- the role of various authorities in resolving failing banks;
- the need for resolution authorities to have robust rules and a certain level of discretion;
- the potential sources of resolution financing;
- overcoming resistance to burden-sharing arrangements;
- the integration potential and political drawbacks of the emerging Banking Union;
- the deposit insurance responsibilities of Member States;
- European Central Bank monetary policy operations as a burden-sharing mechanism; and
- the geographic scope of resolution and burden-sharing regimes and implications for non-participating Member States and third countries.
The significance of this topic for the European integration process cannot be overstated. Practitioners, academics, and officials in numerous areas of law and policy will benefit from the author’s unwavering focus on burden sharing as a means to facilitate the orderly resolution of cross-border banks in Europe.