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Resolution Plans and Resolution Strategies: Do They Make G-SIBs Resolvable and Avoid Ring Fence?

  • Costanza A. Russo
Article
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Abstract

The paper analyses the public section of the 2015, 2016 and 2017 resolution plans of the eight largest US Global Systemically Important Banks (G-SIBs). It unfolds the beneficial effects that the statutory obligation to draft such plans had on the rationalisation of groups’ structure and on US G-SIBs insolvency preparedness. However, the detailed analysis of those plans also shows how banks have almost uniformly chosen a Single Point of Entry (SPOE) resolution strategy which may not be rapid and orderly and may not be the most effective strategy overall given the location and the type of entities covered. This leads the author to argue that the choice of an SPOE may be the preferred option of the relevant US Agencies, leading to a phenomenon of ‘regulatees’ capture’. The paper also shows how in case of insolvency of a US based G-SIB with entities located in the EU, tensions may arise with the relevant EU authorities. This is mainly because of the uncertainty driven: by non-uniform triggering events; by the existence of two types of resolution plans in the US; by the over-reliance on pre-positioned loss absorbing capital at group level (which may not overcome the double leverage problem); by deficiencies in US law to deal with the liquidation of G-SIBs under an SPOE; and by a possibly different regulatory culture in the US and the EU which may afford dissimilar degrees of protection to bank stakeholders.

Keywords

Bank recovery and resolution plans Single Point of Entry Strategy Dodd-Frank Act Ring-fencing Bank resolvability TLAC Double leverage 

Notes

Acknowledgements

The author wishes to thank anonymous EBOR reviewers for helpful comments and suggestions. She would also like to thank Thomas Jr Baxter, Philip Rawlings, Edgardo Ricciardiello, Dalvinder Singh, and Francesco Vella for useful comments. The findings of the paper were discussed at the ‘Roundtable on Financial Stability and Resolution: Emerging Perspective’, University of Edinburgh Law School, on 26 March 2018. She would like to thank participants to the Roundtable for the fruitful discussions. She would also like to express her gratitude to the several experts she discussed the paper with, which however would wish to remain anonymous. Errors are her own.

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Copyright information

© T.M.C. Asser Press 2019

Authors and Affiliations

  1. 1.Senior Lecturer in International Banking Law and Business Ethics, Centre for Commercial Law StudiesQueen Mary University of LondonLondonUK

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