The Economist – America and Britain outline plans for dealing with failing cross-border banks

by Sabrina I. Pacifici on December 17, 2012

When global banks fail: “On December 10th the Bank of England (BoE) and America’s Federal Deposit Insurance Corporation (FDIC) took a step towards making it a little less daunting when they outlined plans to work together were any of their large global banks to implode. The most important element of the strategy is that big cross-border banks should be “resolved”, or cleaned up, from the top down, meaning by the authority in their home countries. A second is that these banks be forced to hold enough unsecured debt at the top of their corporate structures to allow the authorities to impose losses on bondholders, a process known as “bail-in”. The logic of both positions is compelling. In a normal bankruptcy authorities in different places try to grab assets in their own jurisdictions to pay off local creditors, often felling perfectly sound subsidiaries. That happened after the collapse of Lehman Brothers.”

  • Resolving Globally Active, Systemically Important, Financial Institutions – A joint paper by the Federal Deposit Insurance Corporation and the Bank of England. 10 December 2012
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