On Insolvency Law Of Financial Institutions

As the participants in the market economy, financial institutions should not onlyparticipate in the market competition but also be subjected to the result of the survivalof the fittest. The global financial crisis since2008resulted the collapse of manyfinancial institutions, then the reform and improvement of market exitmechanism for financial institutions drew the attention of Western countries onceagain. Chinese financial institutions were less affected by the financial crisis becauseof the lower opening level of financial market. The lack and defects of insolvencylegal system for financial institutions had led the insolvency of financial institutionsinto the situation that there no laws were available and applicable, which not onlyimpede the process of insolvency proceedings, but also harm the creditors’ benefitsand the stability of the financial system. With the improvement of openinglevel of China’s financial market, China should establish and improve the legal systemof insolvency for financial institutions.There is a significant difference between financial institutions and generalenterprise. The financial industry is a typical debt management industry, which makesthe operation of financial institutions suffer greater risk than general enterprise. Inaddition, the insolvency of financial institutions will not onlydamage the interests of numerous creditors and cause social unrest, but alsoaffect the stability of the financial system, and even lead to the collapse of regionaleconomy and national economy as a whole. China’s current legislation on insolvencyregime of financial institutions not only lack effectiveness, specialty and operability, but also not yet establish the losses and risk sharing mechanism for insolvency offinancial institutions.There are two legislative mode on insolvency regime for financial institutions,respectively represented by U.S. and UK, that is special legislative mode and ordinarylegislative mode. For example of banking, bank insolvency in U.S. is subjectedto special laws rather than general insolvency law, insolvency proceedings areessentially administrative procedures led by the Federal Deposit InsuranceCorporation, while bank insolvency in UK is both subjected to general insolvencylaw and the special provisions in Banking Law, insolvency proceedings are judicialprocedures led by court in essence.On the basis of foreign mature experiences, I propose the followingrecommendations to establish and improve the China’s insolvency legal system forfinancial institution. Firstly, the legislation of China’s insolvency regime for financialinstitutions should adhere to the principles of minimum cost, stability, caution andmarket measures. Secondly, based on the existing insolvency law, China should takethe ordinary legislative mode on insolvency regime. The State Council of Chinashould establish the rules of insolvency regime and coordinate the judicial power andadministrative power. Thirdly, as far as the design of specific mechanisms, Chinashould determine the definition and range of financial institutions, then establish thespecialized insolvency administrator team and the special rules on insolvencystandard, insolvent applicants, liquidation order of insolvent property, etc.Finally, China should establish and perfect the supporting systems of insolvencyregimes of financial institutions, especially the deposit insurance system.