Bankruptcy and reorganization procedures for cross‐border banks in the EU

Abstract

PurposeThe purpose of this paper is to examine the complexities of reorganizing and/or liquidating troubled banks under the European Union's (EU) current institutional framework as it is defined by its directives and by national supervisory, remedial, and insolvency practices.Design/methodology/approachThe paper compares provisions of different EU directives that impact financial institutions and summarizes national remedial practices.FindingsThe paper documents the diversity that currently exists among national supervisory, remedial and failure resolution practices for banks. It also assesses the economic efficiency of the institutional framework for resolving problem banks that is defined by the Reorganization and Winding‐up Directive and identifies components of the directive that can hamper efficient cross‐border resolutions.Research limitations/implicationsThere is a deficiency in publicly available information on EU member countries' practices for disciplining and resolving troubled banks.Practical implicationsThe paper assesses issues/conditions that can hamper efficient cross‐border resolutions – issues on which policymakers should focus when they reform the current framework. It also explores areas of coordination with other EU directives that deal with financial crisis management that are relevant in the current financial crisis.Originality/valueThe paper makes policy recommendations for reforming the EU's current institutional framework for resolving troubled banks.