Special resolution regime for banks and building societies—rationale, scope, application and interpretation

The following Restructuring & Insolvency practice note provides comprehensive and up to date legal information covering:

  • Special resolution regime for banks and building societies—rationale, scope, application and interpretation
  • The economic and legal backdrop
  • Emergency measures
  • Development and implementation of the Special Resolution Regime (SRR)
  • Reforms and impact of Brexit
  • EU BRRD
  • EU BRRD II
  • Effect of the Brexit SIs
  • Purpose of the SRR
  • Scope and application
  • More...

Special resolution regime for banks and building societies—rationale, scope, application and interpretation

The economic and legal backdrop

General corporate insolvency law was inappropriate for distressed banks. In particular:

  1. the insolvency practitioners appointed to conduct proceedings were not required to take into account public policy objectives linked to the maintenance of financial stability

  2. banks are vulnerable to losses of confidence, making speed of resolution and early intervention particularly important

  3. depositors, unlike the creditors of an industrial company:

    1. are numerous in number

    2. are not professional market participants, and

    3. whose claims on the bank, as ‘money’, have a major role in the wider functioning of the economy

  4. important external effects to the stability of the financial system can result from a banking failure

Certain resolution tools for banks were available before the introduction of those discussed in this Practice Note (and still are), including public sector capital and liquidity injections and liability guarantees. Without more, these proved inadequate to deal with the fallout from the 2008 sub-prime crisis.

The failure of Northern Rock, coupled with a highly unsettled economic climate and concerns about the stability of a number of similar financial institutions, demanded rapid implementation of measures better suited to resolve failing banks that would go beyond the existing resolution tools and, in contrast to the general insolvency regime:

  1. would cater for the particular needs of depositors

  2. could be applied early

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