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Capital Markets Law Journal Advance Access originally published online on March 6, 2009
Capital Markets Law Journal 2009 4(2):201-235; doi:10.1093/cmlj/kmp006
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© The Author (2009). Published by Oxford University Press. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Banking supervision and the special resolution regime of the Banking Act 2009: the unfinished reform

Emilios Avgouleas*
* Reader in International Financial Law, School of Law, University of Manchester.

The first 150 words of the full text of this article appear below.


Key points

  • One of the fundamental rationales underpinning banking regulation and justifying the costs it entails is the prevention of banking failures and associated depositor runs. This is exactly what the UK regulators could not prevent during the Northern Rock crisis. Apart from the much discussed regulatory failures, the Northern Rock crisis also exposed the absence of an effective legal system dealing with failing banks.
  • The Banking Act 2009 introduces a number of important and far reaching reforms, including a Special Resolution Regime (SRR) for failing banks. The reforms address several of the identified regulatory loopholes. Thus, the Act constitutes a significant improvement over the previous regime.
  • Yet the Act does not seek to reform banking supervision arrangements, even though these have become the subject of considerable criticism. This article argues that, in addition to other reasons, the effective operation of the SRR requires the reform of the institutional structures . . . [Full Text of this Article]

 

   1. Introduction
 

   2. The Northern Rock crisis and regulatory failure
 
2.1. The liquidity crunch and Northern Rock's business plan
2.2. Regulatory failure
2.2.1. Failure of supervision
2.2.2. The rationales for liquidity support and liquidity regulation
a. Liquidity support and moral hazard: it's a king's dilemma
b. Liquidity regulation
c. Delayed disclosure of liquidity support and the market abuse directive

   3. The SRR
 
3.1. Institutional structure and the objectives of SRR
3.1.1. Structure
3.1.2. The objectives of the SRR
3.2. Requirements for the exercise of stabilization powers and of stabilization options
3.2.1. Conditions for the exercise of stabilization powers
3.2.2. Stabilization options
a. Scope and general requirements
b. Private sector purchaser
c. Bridge bank
d. Temporary public ownership
3.3. Special insolvency procedure
3.3.1. Conditions for granting an insolvency order
3.3.2. Bank liquidation
3.4. Special administration procedure (bank administration)

   4. Other important banking act reforms
 
4.1. The new funding arrangements and the enhanced role of the FSCS
4.2. Financial stability committee

   5. SRR effectiveness and the UK system of banking supervision
 
5.1. Issues of governance arising from the application of the SRR
5.2. SRR and banking supervision

   6. Conclusion
 

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