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A critical evaluation of banking resolution measures in a context of crisis. Lessons from the resolution of Anglo Irish Bank during the 2008 financial crisis
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Date
2021-01-05
Authors
Lefeuvre, Elise Emmanuelle
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Publisher
University College Cork
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Abstract
This doctoral thesis examines the lessons to be learned from the resolution of Anglo Irish Bank during the 2008 financial crisis, in order to evaluate the six resolution tools that are defined in the Bank Recovery and Resolution Directive (Directive 2014/59/EU) and that are integrated within the Single Resolution Mechanism. The analysis focuses on evaluating these resolution tools in a context of financial crisis, i.e. a crisis similar to the 2008 financial crisis. Five of these six resolution measures were used during the Irish financial crisis, principally for Anglo Irish Bank. Anglo Irish Bank’s resolution hence enables an understanding of the functioning, benefits, and limits of recapitalisation, work-out agencies, nationalisation, merger, and liquidation. The sixth resolution tool is bail-in, which denotes a private recapitalisation and which was created in the BRRD in reaction to the 2008 public recapitalisations. By reference to the Irish response, to the recent SRM resolutions, and to financial analyses, the dissertation seeks to provide a practical explanation of the effects and the feasibility of these resolution tools.
The resolution of Anglo Irish Bank shows that resolution tools can work alone, in combination, and in succession. This gives flexibility and back-up solutions to help a bank at different stages of a crisis. The Irish example evinced that recapitalisation is an expedient emergency tool to contain a crisis, even though it is legally and politically controversial. The Irish response highlights that a work-out agency is capable of solving non-performing loans, so long as there is a sound legal framework to protect property rights. Furthermore, corporate measures (nationalisation, merger & acquisition, and liquidation) can successfully assist a bank if piloted by a public authority.
EU banking resolution includes a large suite of resolution tools, which is now encompassed within the Single Resolution Mechanism. EU banking resolution is marked by the tension between recapitalisation and bail-in. While recapitalisation is necessary to address urgent distress, bail-in cannot be used as a standalone measure and it has limited relevance when the State is a major shareholder.
Through this dissertation, the main features of a good banking resolution are identified. Banking resolution must have a permanent legal framework. Financial difficulties are part of entrepreneurial business and the continuity of banking services is core to capitalist economies. Having a variety of resolution tools within a permanent resolution regime allows public authorities to choose the most commercially and politically suitable option, and to adapt their strategies in response. Some resolution tools can be expensive, and their costs need to be anticipated. Resolution should therefore be administered by a public authority, especially since banking is critical to capitalist economies.
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Keywords
Anglo Irish Bank , Banking resolution , Banking law , 2008 Financial crisis
Citation
Lefeuvre, E. E. 2020. A critical evaluation of banking resolution measures in a context of crisis. Lessons from the resolution of Anglo Irish Bank during the 2008 financial crisis. PhD Thesis, University College Cork.