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Counteracting the domino effect

Wednesday 12 May 2010 - by Edmund Lakin


The concern here, as has been said by Bank of England deputy governor for financial stability Paul Tucker, is that nothing much has been done globally. Indeed progress at the European Union level does not offer much encouragement for an effective insolvency regime.

European Banking Federation banking supervision adviser Noémie Francheterre argues that “insolvency regimes across the EU do not facilitate cross-border resolutions”.

She does not envisage a harmonised framework being achieved in the short to medium term. There are a number of factors here, one being that national philosophies have guided current member state regimes.

The issues surrounding resolution funds are potentially even greater, as questions as to what legal, governance, or revenue raising authority have not been made.


There is a question mark over how front-loaded the crisis management should be. Although there is political will to create cross-border resolution frameworks to deal with systemically important financial institutions, is it not more effective for policymakers to concentrate on prevention measures to resolve monitoring of systemic risks in the first place?

If creating mechanisms for winding down large institutions is going to be delivered in the long-term, effective focusing on current regulatory packages such as harmonising over-the-counter and capital requirements will build the shock absorbers into the system ahead of another crisis.


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