Bank insolvency and the interests of creditors
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Volume 7 Numbers 1/2
Bank insolvency and the interests of creditors Andrew Campbell University of Leeds, Department of Law, 20 Lyddon Terrace, Leeds LS2 9JT, UK tel: +44 113 343 7113; e-mail: [email protected]
Andrew Campbell is a Reader in International Business Law and Director of the Centre for Business Law and Practice at the School of Law, University of Leeds. His current teaching includes International Banking Law, International Corporate Rescue, Financial Services Law and Company Law. His research interests are mainly focused around various aspects of banking law with special emphasis on issues relating to bank insolvency, bank regulation, the protection of bank depositors and the international efforts aimed at the control and prevention of money laundering. He is Consulting Counsel on banking law to the Legal Department of the International Monetary Fund, Washington, DC and holds a practising certificate as a Solicitor of the Supreme Court in England and Wales. Prior to entering academia he worked in the financial sector, both in the UK and overseas, for a number of years. He is the author (with Peter Cartwright) of ‘Banks in Crisis: The Legal Response’ (Ashgate, 2002).
ABSTRACT This paper examines some of the factors which make a bank insolvency different to other insolvency situations and is focused on the interests of creditors, with special emphasis on depositors. It considers the aims and objectives of a bank insolvency law and the relationship between the causes of bank failure and banking regulation.
The reasons for treating banks differently from other types of business and the possible ways of preventing banking crises are analysed, as is the issue of attempting to provide alternatives to liquidation. The paper is written from an international perspective. INTRODUCTION In any insolvency the interests of creditors is a matter of concern but in the case of an insolvent bank the matter is often further complicated by the existence of thousands of depositors. How to treat these depositors raises many issues, some of them legal but some are economic, social and also political. The failure of a large bank will have effects which reach far wider than the shareholders and customers of that bank. For example, other banks may be adversely affected and a systemic crisis may emerge. The payments system of the country may be disrupted to some extent and this can have far-reaching economic effects. Where the insolvent bank is operating in more than one jurisdiction the position is even more complicated. Joined to these issues is the possibility that the loss of savings by a large number of voters will have political consequences. A government which is perceived as having taken no action to prevent the failure of a bank may find that its popularity with voters has diminished and this could, of course, have an adverse effect on its chances of re-election. For these reasons,1 in most countries, the insolvency of
Journal of Banking Regulation, Vol. 7, Nos. 1/2 2006, pp. 133–144 # Palgrave Macmillan Ltd, 1745–6452/06
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