6. Bank Insolvency and Resolution

Abstract

Banks can become distressed for a range of reasons, just like other firms. These reasons may be internal to the distressed bank (e.g. risky lending practices) or external to it (both at industry level and at the macroeconomic level), or both. Distressed banks, however, are not always subject to the same regulatory regime that governs the treatment of distress in other kinds of firms. Banks have special characteristics and this has led to the special treatment, which is explored in this chapter. The discussions cover the justification for special treatment, special resolution regimes, bank resolution regimes at domestic level, and cross-border complexities.