Resolution of Cross-Border Banks - A Proposed Framework for Enhanced Coordination

Policy Papers, June 11, 2010

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The recent financial crisis increased urgency for resolution systems for financial institutions that both safeguard financial stability and limit moral hazard.
Experience demonstrates that resolution systems will not be effective unless progress is made in developing a framework that applies on a cross-border basis.
Many systemically important financial groups operate globally; an uncoordinated application of resolution systems by national authorities will make it much more difficult to:
- secure the continuity of essential functions (thereby limiting contagion), and
- ensure that shareholders and creditors bear the financial burden of the resolution process.

Cross-border coordination is essential because many systemically important financial groups operate globally.
Uncoordinated national resolution actions increase difficulty in maintaining continuity of essential functions and limit effectiveness in containing contagion.
Effective cross-border resolution frameworks are necessary to align financial stability objectives with the principle that shareholders and creditors bear the costs of resolution.

Develop and adopt a cross-border framework for resolution systems to:
- safeguard financial stability, and
- limit moral hazard by ensuring that shareholders and creditors bear the financial burden.
Promote cooperative arrangements among national authorities to coordinate application of resolution tools and preserve continuity of essential functions across jurisdictions.

Executive Summary — IMF staff paper
- Executive Summary — IMF staff paper (Markdown version)
- Executive Summary — IMF staff paper (PDF)