The impact of bank crisis prevention, recovery and resolution on shareholder rights

Abstract

In the post-financial crisis regulatory reforms, emphasis has been placed on ensuring that shareholders are the first to bear losses of bank failures. Supervisors have (or will have) extensive powers on banks, eg to replace directors, to transfer shares to third parties, and even to cancel existing shares and “replace” shareholders. This article focuses on regulatory reforms in the European Union and the United Kingdom. Four key issues are examined. First, the article studies whether interference with shareholder rights in bank crisis management is justified as a matter of policy. Second, the article examines the interaction between recovery and resolution tools and shareholder rights established in law. Third, the article considers appropriate safeguards for shareholders in bank recovery and resolution proceedings. Finally, the article discusses possible implications of interference with shareholder rights, which may have an adverse impact for financial stability.