Of Special Interest


[x] [x]

25th May 2012

Orderly bank wind-ups now European priority

An important point was made at this week's European Union summit: that orderly bank wind-ups legislation should now be an urgent priority. The subject is not new of course, however its urgency comes from the possibility that Greece could leave / be ejected from the Euro. If this were to happen it is likely that a number of banks would become insolvent outside of Greece.

The requirement for orderly wind-up / living wills was agreed following the western financial crisis in various world summits. As the US is also finding, developing meaningful strategies and legislation to meet this requirement is a complicated matter. Measures that are too draconian, particularly with respect to bondholders, are likely to make it harder for banks to raise capital at a time they have a need to raise significant amounts. The second problem is that EU legislation is a notoriously slow process. Whether Greece stays in or exits the Euro is one likely to be determined within, at most, 18 months.