There is no international insolvency framework for financial firms and a limited prospect of one being created in the near future. To prevent weakness in one institution affecting the entire financial system, a pre-planned resolution mechanism should ensure winding down of the problem in an orderly manner, only affecting the shareholders or at best the creditors, but not tax payers in general.
Different proposals in this regard include “living wills” prepared by institution, particularly large and systemically important institutions during normal times approved by their respective boards, or resorting to “narrow banking” that could limit the activities of a bank once its problems exceed some threshold.