Vítor Constâncio: A European solution for crisis management and bank resolution Speech by Mr Vítor Constâncio, Vice-President of the European Central Bank, at Sveriges Riksbank and ECB Conference on Bank Resolution, Stockholm, 14 November 2011. *  *  *  Introduction Ladies and gentlemen, It is an honour for me to speak at today’s conference, which has provided a stimulating debate on the challenging topic of bank recovery and resolution. The complexity of developing an effective framework for crisis management and resolution arises from the objective of achieving stability in increasingly integrated financial systems, where the authorities responsible for safeguarding their respective stability are still responsible towards their respective taxpayers. This element of complexity has been taken into account in a number of policy initiatives and suggestions worldwide. Especially in the EU context, I wish to acknowledge the pivotal role played by Lars Nyberg in this domain. His long-time devotion to the design and implementation of EU crisis management arrangements, coupled with his qualities as a central banker, have made Lars a key policy-maker for crisis management in the EU. I would also like to thank Lars for his long-standing and fruitful collaboration with the ECB in this field. Principally in the context of the work carried out by the Banking Supervision Committee, but also as Chairman of the EFC High-Level Working Group on Crisis Management, Lars has very often acted as a catalyst for coordination and cooperation among national authorities and EU institutions.
In my speech today, I would like to focus on the ongoing reforms aimed at enhancing the mechanisms with which authorities can handle problems in banks and reduce the potential impact of failures, should they occur. First, I will briefly recall the main shortcomings of the current resolution regimes. Second, I will consider the international, European and national initiatives to cope with the challenges. Finally, I would like to say a few words about the future path towards an optimal arrangement for cross-border resolution. The main shortcomings of the current frameworks During the current crisis we have seen several government-funded bailouts and one case where, in place of a bailout, a disorderly collapse occurred with widespread effects around the globe. There are multiple reasons why no better alternative between these two extreme solutions was available in these cases. First, letting financial institutions fail was often not a feasible alternative from a legal perspective. In a majority of countries, only normal corporate insolvency proceedings were – and in many countries, still are – available to banks. However, limiting credit and liquidity losses in the case of failure may not be effectively ensured by using these mechanisms, because they were not designed to take into account the special nature of credit institutions. Second, even if a well-designed special bank resolution or insolvency regime is in place in a particular country, this does not guarantee that cross-border banks can also be dealt with effectively.