Insolvency – Why a Special Regime for Banks?

Abstract

Banks fulfill special functions in an economy. The primary objective of a bank insolvency regime must be to preserve these essential functions. This objective should guide the design of the legal framework for bank insolvency. The banking supervisory authority or a designated resolution authority have a key role in the bank insolvency procedure. Their statutory responsibility is both to protect depositors’ and creditors' interests and to preserve the stability of the financial system. An effective regime must provide for powers to intervene early and effectively and in a manner that minimizes the impact on the financial system and economy as a whole.

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