Special Bank Resolution and Shareholders’ Rights: Balancing Competing Interests

Journal of Financial Regulation and Compliance, Vol. 17 No. 3, pp. 277-301, 2009

Posted: 8 Feb 2011

See all articles by Eva H.G. Hüpkes

Eva H.G. Hüpkes

Swiss Financial Market Supervisory Authority (FINMA)

Date Written: April 7, 2008

Abstract

An effective bank resolution regime requires taking action while the bank still has positive net worth and shareholder claims still have economic value. Such actions raise a number of legal issues with respect to the rights of shareholders. This paper aims to consider how to strike a balance between the need to protect the legitimate rights of shareholders and the need for prompt and rapid action and a failure resolution mechanism that minimizes disruptions to the financial system and preserves market discipline. The paper examines the nature of the shareholders’ rights and the legal protection afforded to them. In the European context, the relevant sources of law are the European Convention on Human Rights and the applicable community legislation. It considers different options for resolution within this framework ranging from a pre-packaged resolution decided by the shareholders ex ante to the outright divestiture of the shareholders once certain regulatory thresholds are breached while the bank still has positive net worth.It discusses key elements that policy makers need to consider in the design of a regulatory framework for early intervention and resolution.

Keywords: Bank insolvency, early intervention and resolution, shareholder rights, United States, United Kingdom, Euopean Union, European Convention on Human Rights

JEL Classification: G21, G28, G33, G38

Suggested Citation

Hüpkes, Eva H.G., Special Bank Resolution and Shareholders’ Rights: Balancing Competing Interests (April 7, 2008). Journal of Financial Regulation and Compliance, Vol. 17 No. 3, pp. 277-301, 2009, Available at SSRN: https://ssrn.com/abstract=1756104

Eva H.G. Hüpkes (Contact Author)

Swiss Financial Market Supervisory Authority (FINMA) ( email )

Einsteinstrasse 2
Bern, 3003
Switzerland

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