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Resilience of the EU financial sector in the global context - Workability of cross-border bank resolution
Does mutual confidence between regulators need legal backing?
By Mingay Rupert - Group Treasurer, Standard Chartered Bank
Effective resolution of a cross-border firm hinges on a high degree of trust between regulators before, during and after resolution. However, in practice, mutual confidence needs to be supplemented by legally binding arrangements.
The Financial Stability Board’s (FSB) Key Attribute 7 outlines the legal framework conditions for cross-border cooperation, and its Principles for Cross-border Effectiveness of Resolution Actions set further expectations on statutory approaches for giving effect to foreign resolution measures. While the objective of statutory frameworks is admirable, many countries do not yet have a full resolution regime in place and of those that do, there are questions over whether they contain reliable measures for recognising or supporting the resolution actions of a foreign authority. The FSB principles acknowledge that statutory frameworks are not an immediate solution and state that contractual measures can provide the necessary legal backing in the interim. Resolution frameworks requiring banks to implement contractual solutions have been developing in parallel with the FSB work and, in the case of Article 55 of the Bank Recovery and Resolution Directive (which requires EU banks to include a recognition of bail-in clause in a wide range of non-EU law governed contracts), problems have been encountered both with its scope, which is far broader than envisaged by the FSB principles, and by clients and regulators in the countries it impacts being unfamiliar with its aims. So while contractual solutions have a role to play, they must be proportionate and coordinated.
Crisis Management Groups and cross-border cooperation agreements (which may or may not be legally binding) can also aid cooperation, but host authorities outside the Crisis Management Group may also have a role to play in ensuring a successful resolution and should not be forgotten.
It is often said that cross-border banks are global in life and national in death. Both mutual confidence between regulators and the legal backing of statutory frameworks are crucial to ensuring this is not true.