Northern Rock, UK bank insolvency and cross-border bank insolvency (original) (raw)

This paper deals with bank crisis management in light of the Northern Rock debacle on the one hand and the ongoing credit crisis on the other. Following a brief narrative of the events from September 2007 (with the run on Northern Rock) to February 2008 (when the government announced its nationalisation), the paper examines the legislative and regulatory responses in the UK, and assesses some features of what is expected to be a new special resolution regime (SRR) to deal with banks in distress (including both pre-insolvency measures and insolvency). Although financial markets and institutions have become international in recent years, regulation remains constrained by the domain of domestic jurisdictions. This dichotomy poses challenges for regulators and policy makers. If at the national level, bank crisis management is complex (with the involvement of several authorities and the interests of many stakeholders), this complexity is far greater in the case of cross-border bank crisis management, both at the EU level and at the international level. In any financial crisis, it is necessary to have a clear and predictable legal framework in place to govern how a financial institution would be reorganised or liquidated in an orderly fashion so as not to undermine financial stability. We do not have such a framework yet with regard to cross-border banks, neither at the European level nor at the international level. This paper analyses some of the European and global initiatives to confront these cross-border challenges, which affect lender of last resort, deposit insurance arrangements and insolvency proceedings.