Research On The Legal System Relevant To Bank Resolution

Bank resolution means any public measures, including mergers and acquisitions, equity financing, debt-equity swap, the transfer of assets and liabilities, interim management, reorganization and liquidation, taken by a national authority, with or without private sector involvement, intended to recover and address serious problems in a bank that imperil its viability. Historical experience shows the intervention late, time-consuming and high cost of ordinary bankruptcy proceedings in dealing with bank failures makes it impossible to achieve the target of the need to protect the overall interests of depositors, creditors and even the financial system, but also determines a special resolution regime must be established in the modern financial system. After the most recent financial crisis, developed countries represented by the UK and USA had updated their resolution regimes on the basis of summing up experiences and lessons of the crisis, which strongly stimulate the development of the bank resolution legislation and technology. China has not yet established a special bank resolution regime, and relevant legislation still gaps. To further improve China's bank resolution legislation and to prevent bank risks that may arise, studying on bank resolution regime, especially the technological innovation and practice development in the post-crisis has extremely important practical significance.Six chapters can be found in this thesis, they are as follows:The first chapter is "Empirical analysis of bank resolution". This chapter first introduces four cases of banks resolution in the financial crisis, namely the Lehman Brothers, American International Group, Washington Mutual Bank and the Northern Rock, for the demonstration of different resolution options selected by resolution authorities will produce different consequences in the recovery or delisting of a crisis bank. Then described and analyzed the legislative update of bank resolution in the world after the crisis, a typical representative of the U.S. Dodd-Frank Act, the2009Banking Act and the Key Attributes launched by the Financial Stability Board. Finally inspected and reflected the reasonable and limitations of our current bank resolution regime, and pointed out that in the post-crisis era, China should scientific refer to the common practice and legislative updates of the international community, develop reasonable and effective bank resolution regime according to the actual situation of the country.The second chapter is "Basic theory of bank resolution". This chapter begins with analysis of the meaning of bank and bank resolution, elaborated the necessity of the establishment of a special bank resolution regime from a theoretical point of view, particularly emphasized the scope of bank resolution should not be limited in the ordinary commercial banks and savings/loan institutions, but must be extended to financial institutions who provide different types of banking services, in order to adapt to the needs of globalization integration. Countries in setting the threshold of resolution should not be confined to a forcible or a gentle way, and can make a combination of both. To maintain the security and stability of the financial system, to protect the interests of small depositors and to avoid taxpayers exposure to loss, resolution procedure should be commenced rapidly when the crisis bank across the threshold, and must follow the principle of rapid and orderly resolution, the least-cost principle, the loss-sharing principle and the principle of supervision and accountability.The third chapter is "Banking resolution authority and its powers". The effectiveness of a country's bank resolution regime depends largely on the distribution of powers and the division of responsibilities for the resolution authorities. Therefore, one basic element for establishing bank resolution regime is the countries should regulate resolution authorities and their powers respectively. The first section of this chapter pointed out the types of resolution authorities and their respective functions. On the whole, resolution authorities including bank regulatory authorities, the Central Bank, Ministry of Finance, the Deposit Insurance Corporation and the Judiciary. Those authorities who participating in bank resolution are not the same in different countries, in which the positions and the roles are also different. This chapter introduced the resolution authorities and their division of functions in the United States, the United Kingdom, Canada and China. To the effective exercise of the resolution tools and bank failure losses shared by its shareholders and creditors, resolution authorities must be given wide resolution powers, including power to start early, power of personnel management, the basic resolution power and special resolution power.The fourth chapter is "Bank resolution proceedings". Once the crisis bank resolution threshold is reached, the resolution authorities will commence bank resolution proceedings. The primary measures for banks are implementing official administration and appointing administrator. Therefore, the section of this chapter illustrates the commencement of official administration, the appointment of the administrator and their duties and administrative legal issues. Official administration starts firstly, but throughout the whole process of the bank resolution and terminated after the necessary restructuring was completed or bank was restored to health, or bank was transferred or was liquidated. After the administrator made a diagnosis in the administrative stage, it will try to restructuring bank's business and make it continue to operate. Bank restructuring can minimize the impact to the financial system, and meet the claims of depositors and other creditors and taxpayers in minimum cost. To this end, Section ? analyzes several the bank restructuring technologies and their advantages and disadvantages. If the bank has no hope of survival, it had to be closed and be liquidated. The contents of bank liquidation proceedings are similar to the enterprises bankruptcy proceedings, once of a liquidator was appointed, the main objectives of the liquidator is to maximize the preservation, recovery, identification and realization of the bank's assets and allocate to creditors as much as possible. Taking into account the particularity of resolution powers and resolution technologies in systemic banking crisis, the last section analyzed the institutional arrangements and legal arrangements of bank resolution in the systemic crisis.The fifth chapter is "Safeguards of bank resolution". The safeguards of bank resolution intended to ensure the resolution proceedings carried out smoothly and the key business continue to operate, thereby stabilizing the confidence of creditors and markets as a whole. To this end, this chapter focuses on the analysis of three safeguards in bank resolution, including the funding mechanism, protection mechanism for bank creditors and temporary stay on early termination rights. Funds should not be borne by taxpayers, but should be raised from market. The funding sources are divided into three categories, including industry funds, private sector financing and financial support. The protection of creditors in resolution is also divided into the limitation on the use of resolution tools in advance and post-compensation of property rights."No Creditors worse than liquidation" is a safeguard proposed in this context, which provides the interests of creditors in the bank resolution proceedings at least not less than the benefits they deserve according to the liquidation proceedings. Temporary stay on early termination rights is necessary for market stability, within a specified period of temporary stay for counterparties exercising early termination rights of financial contracts, including close-out netting.The sixth chapter is "Resolution on cross-border banks." This chapter first analyzes the motivation of cross-border cooperation and coordination on resolution, and the limited achievements made by the international community in the area of cross-border bankruptcy and even cross-border bank failures, which represented by European Directive on the Reorganization and Winding-up for Credit Institutions and UNCITRAL Model Law on Cross-Border Insolvency. Then pointed out three special legal problems should be recognized and addressed on achieving the effective resolution of the cross-border banks, including the group structure of a cross-border banks, the positive conflict of jurisdiction on the resolution of cross-border banks and how to ensure all creditors treated fairly on the resolution of cross-border banks. Section III Analysis of the content of cooperation in cross-border bank resolution between home and host countries, including information sharing, the establishment of Crisis Management Groups, the development of recovery and resolution plans and the sign of institution-specific cross-border cooperation agreements between relevant authorities.