Binder, Jens-Hinrich --- "‘Too-Big-To-Fail’ – Can Alternative Resolution Regimes Really Remedy Systemic Risk in Large Financial Institutions’ Insolvency?" [2011] ELECD 499; in LaBrosse, Raymond John; Olivares-Caminal, Rodrigo; Singh, Dalvinder (eds), "Managing Risk in the Financial System" (Edward Elgar Publishing, 2011)

Book Title: Managing Risk in the Financial System

Editor(s): LaBrosse, Raymond John; Olivares-Caminal, Rodrigo; Singh, Dalvinder

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9780857933812

Section: Chapter 14

Section Title: ‘Too-Big-To-Fail’ – Can Alternative Resolution Regimes Really Remedy Systemic Risk in Large Financial Institutions’ Insolvency?

Author(s): Binder, Jens-Hinrich

Number of pages: 15

Extract:

14. `Too-big-to-fail' ­ can alternative
resolution regimes really remedy
systemic risk in large financial
institutions' insolvency?
Jens-Hinrich Binder*

14.1. INTRODUCTION

Substantial fiscal costs have been incurred in the bailouts of financial
institutions, deemed systemically important. In view of the moral hazard
inevitably triggered by such operations among bank owners and bank
creditors, improved resolution procedures for large, complex financial
institutions (LCFIs) are clearly needed on the legislative agenda at
both the national and international levels. International standard-setting
bodies such as the Basel Committee,1 the then Financial Stability Forum
(now the Financial Stability Board),2 the European Union3 as well as
national governments have announced initiatives to improve existing
systems. With the passage of the Banking Act 2009, the UK has taken the
lead and implemented a complete overhaul of its previous arrangements.4
Germany, to give another example, has just followed with a reformed
bank insolvency regime that came into force in January 2011.5 Evidently,
the key policy objective common to all such initiatives is to avoid the
need for further bailouts of systemically important institutions, be it
on the grounds of their size ­ i.e. motivated by `too-big-to-fail' (TBTF)
considerations ­ or their respective interconnectedness with other market
participants is expected to trigger a domino effect upon formal closure and
liquidation.
This chapter discusses the prospects and constraints on such concepts.
While a detailed analysis of the vast range of technical problems associ-
ated with alternative resolution regimes is outside ...