Research Discussion Papers, Bank of Finland
No 17/2009:
Early intervention and prompt corrective action in Europe
David G Mayes ()
Abstract: The present crisis has revealed that, as expected, much of
the safety net for handling failures in the banking system is deficient,
particularly for cross-border banks, and the present problems had to be
handled by a range of ad hoc measures. The principal new measure that needs
to be undertaken in most countries is the implementation of a satisfactory
special resolution regime for banks. This paper, however, deals with two
further steps that could assist the operation of the safety net. The first
is to ensure earlier intervention so there is more time to put a
satisfactory rescue or resolution in place. The second is to implement a
regime of prompt corrective action (structured early intervention and
resolution, SEIR) so that both supervisors and banks know that a regime of
increasing intensity will take place according to a strict timetable that
will end in the authorities stepping into the bank while it still has
positive capital, if the earlier stages are not effective. The paper
evaluates the means of doing this in a European environment making use of
the experience in the United States. It concludes that, while a lot can be
done even within the current framework of national supervision,
particularly through pre-positioning, cross-border banks can be better
treated either by revising the home-host responsibilities or by moving to a
supranational level of responsibility for SEIR for those banks whose
continued operation is considered necessary for financial stability in any
member state.
Keywords: early intervention; prompt corrective action; cross-border banks; pre-positioning; bank resolution; (follow links to similar papers)
JEL-Codes: E58; F15; F23; G21; G28; G33; (follow links to similar papers)
41 pages, August 11, 2009
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