Financial Resolution of Banks in Distress: International Evidence

Financial crises have hit the banking sectors across the world over the last 15 years. They cause a severe damage to national economies and undermine confidence in banking institutions. This results in a considerable development of insolvency resolution practice. New legal procedures related to bank insolvency have been introduced at different levels, including the international one. The banks which face solvency problems may have short-term difficulties with which they can cope themselves without financial assistance from national regulators. Nevertheless, if the problems are serious, in order to solve them certain actions are to be taken by national banking authorities, including financial assistance, primarily via the Deposit Insurance Schemes. If the threat of bankruptcy hangs over a global financial institution, the public stabilization toolkit and public funds are used. To get financial assistance from national and international authorities a bank should be systemically important. This is the most crucial factor on which national and international regulators base their decisions about providing troubled banks with financial support. The article summarizes the measures and tools which are used for the financial resolution/recovery of banks which are on the verge of insolvency.