Banking Crisis & Special Resolution Regimes

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Once upon a time.... a country was brought to near ruin by the collapse of the banking system. A paper on how countries respond when banks fail.

Attached below is a paper, written by Mark Kennedy and Feargus O’Raghallaigh, on how countries have responded when banks fail.

It is not a subject we in developed or industrial market economies have had to think about for some time. It was, until the current global financial crisis, as it has come to be called, simply grist for foreign correspondents reporting from Latin America or corners of Asia – or writing from Japan about something called the 'lost decade'. So we never stopped to think – why would we?

We are thinking now though – in Ireland as elsewhere. Banking has somehow stopped and we are left wondering – what do you do when your banks get into serious trouble through having funded a bubble? This paper addresses these issues and looks at what others have done in similar situations.

What the authors emphasise, and what I take from their research, is not how to cope with failure, but how to ensure, as best one can, that the keystone to the modern economy, banking as the engine of credit, has resilience safeguarded by supervision and regulation which also focuses on assuring the source of money‐as‐credit.

Mazars is publishing this paper as a contribution to a public debate and policy reform process that must now happen in Ireland and more generally in the European Union. That debate and process is now getting under way. The Memorandum of Understanding between the government and the IMF and EU authorities contains a commitment that Ireland will publish legislation before the end of March 2011.

Since the turn of the year the European Commission has launched a consultation process on its proposals for a European crisis management framework for banking, including special resolution. The deadline set by the Commission for contributions to that consultation is early March.

I hope this paper will make an important contribution to any debate.

Joe Carr, Managing Partner