Lastra, Rosa M.; Olivares-Caminal, Rodrigo --- "From Consolidated Supervision to Consolidated Resolution" [2011] ELECD 502; in LaBrosse, Raymond John; Olivares-Caminal, Rodrigo; Singh, Dalvinder (eds), "Managing Risk in the Financial System" (Edward Elgar Publishing, 2011)

Book Title: Managing Risk in the Financial System

Editor(s): LaBrosse, Raymond John; Olivares-Caminal, Rodrigo; Singh, Dalvinder

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9780857933812

Section: Chapter 17

Section Title: From Consolidated Supervision to Consolidated Resolution

Author(s): Lastra, Rosa M.; Olivares-Caminal, Rodrigo

Number of pages: 25

Extract:

17. From consolidated supervision to
consolidated resolution
Rosa M. Lastra and Rodrigo Olivares-Caminal

17.1. INTRODUCTION

Consolidated supervision has become a premise for global banking as
complex financial institutions increasingly expand the range of their serv-
ices offered in several countries. However, the financial crisis of 2007­09
has shown that consolidated supervision is not enough; it needs to be
aligned with a more effective resolution process. Though efforts are under
way at the international level, with both the International Monetary Fund
(IMF) and the Basel Committee on Banking Supervision Cross-Border
Bank Resolution Group working to develop a cross-border resolution
framework,1 the lack of an effective consolidated resolution framework
poses a challenge to the future of global banking and finance.
That form of supervision is based on the assumption that financial
groups form a single economic entity. However, with respect to the resolu-
tion of a failed multinational bank, or of a complex financial group with
different units performing different activities which include various legal
entities (i.e. subsidiaries) incorporated in various jurisdictions, the assump-
tion that financial groups form a single economic entity cannot be said to
be a legal reality. In a bankruptcy scenario, a financial group is typically
split up into its various components or into various legal entities who are
subjected to the insolvency laws of the jurisdiction where they have been
incorporated. Even foreign branches of multinational banks or companies
are some times liquidated and treated as separate units. Consolidated or
...