Three-step strategy for resolution of failed institutions

Three-step strategy for resolution of failed institutions

Financial Services analysis: Has the Bank of England (BoE) taken the right approach towards the resolution of failed financial institutions? Andrew Wilkinson and Alexander Wood, partners, and Kate Stephenson, consultant, in the business finance and restructuring team at Weil, Gotshal & Manges LLP, consider the proposed framework of resolution measures.

Original news

Bank of England resolution for failed banks and firms, LNB News 23/10/2014 122

To achieve orderly resolution when a bank, building society or investment firm fails, firms need to have feasible and credible resolution strategies, and financial authorities must have the necessary resolution powers and the capacity to apply them. The approach to be taken by the Bank of England (BoE) in resolving a failure is set out in a new publication which outlines the three stages of resolution—stabilisation, restructuring and exit from resolution.

For more information on the background to the Bank Recovery and Resolution Directive 2014/59/EU (BRRD), see ‘The EU Recovery and Resolution Directive: preventing another financial crisis’ (2013) 10 JIBFL 641, LNB News 12/11/2013 35

What is the background to the Approach Document?

The BRRD has imposed a common approach to the recovery and resolution of banks and investment firms within the EU.

It is required to be implemented under national law from 1 January 2015. The BoE is responsible for the resolution of a failing bank, building society or investment firm under the (amended) Banking Act 2009 (BA 2009).

The Approach Document sets out the bank’s ‘toolkit’ or framework of resolution measures and sets out exactly how it would go about resolving a bank, building society or investment firm in practice once the BRRD becomes effective. The bank’s aim is to ensure that the adverse effects of any failure of a firm within the scope of the resolution regime are minimised.

The stated objective in publishing the Approach Document is to ensure that financial institutions, their owners, investors and customers understand the risks involved—and

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About the author:
Kathy specialises in restructuring and cross-border insolvency. She qualified as a solicitor in 1995 and has since worked for Weil Gotshal & Manges and Freshfields. Kathy has worked on some of the largest restructuring cases in the last decade, including Worldcom, Parmalat, Enron and Eurotunnel.