REGULATION AND INSOLVENT BANKS

Abstract

Bank regulation tends to develop as a reaction to bank insolvencies. Much of the detail of regulatory measures, comprising EU Directives, statute and guidance from the Bank of England is intended to enable banks to avoid collapse. The Bank of England's role and duties as prudential supervisor of banks is much more ambiguous than would be expected from this pattern, however. The Bank's effectiveness as supervisor has been subject to criticism since the Barings debacle, calling into question the purpose of bank regulation. After explaining the existing legislative and practical background to supervision of troubled banks, this paper considers the importance of protecting depositors as a guiding principle of regulation and explores possible developments.