Cross-border bank insolvency: Legal implications in the case of banks operating in different jurisdictions in Latin America

Abstract

This paper focuses on the issue of bank liquidation from an international perspective and discusses the legal implications of the liquidation of banks with branches and subsidiaries in different jurisdictions. The regional scope of the paper is Latin America, though references to EU and US law are also included. The paper is divided into six sections. The first section provides an introduction to the subject. The next section broadly discusses the options available to the authorities to deal with failed banks (liquidation or rehabilitation). The third section deals with the international, regional and bilateral rules regarding issues of cross-border insolvency. Special attention is given to the Montevideo Treaties and the Bustamante Conventions as relevant treaty developments in this field in Latin America. This section also covers a brief analysis of international law principles applicable to cross-border insolvency. The fourth section examines the work of the Basel Committee on Banking Supervision with regard to the international regulation of branches and subsidiaries. It also presents some observations with regard to the closure of a multinational bank. This is followed by a section that surveys the regulation of branches, subsidiaries and joint ventures in some Latin American countries. This section is complemented by three appendices at the end of the paper which summarise the legislation applicable to foreign branches and subsidiaries and to local branches and subsidiaries overseas in six jurisdictions: Peru, Chile, Venezuela, Colombia, Brazil and Argentina. A further appendix (Appendix 4) analyses the powers of supervisors, in particular with regard to the liquidation of banks, in these six jurisdictions. The final section presents the example of the Brazilian legislation and practice to deal with the problems (including possible liquidation) of foreign branches and subsidiaries in the country as well as the problems (including possible liquidation) of branches and subsidiaries abroad. The latter is illustrated with a case which involved the liquidation of a Brazilian bank with branches in New York and Cayman Islands.