10Contractual Impediments – Recovery and Resolution Planning

In this chapter, we explore the impact of the Financial Crisis on the growing regulatory requirements in respect of recovery and resolution planning, seeking to address financial stability concerns that came to the fore during the Financial Crisis due to some major financial firms turning out to be ‘too big to fail’. After examining broader considerations of recovery and resolution, the chapter analyses the recovery and resolution approaches under the US and EU frameworks, with particular consideration given to the initiatives created to assist in complying with the new requirements.

The Context Behind Recovery and Resolution Planning

The crisis exposed severe systemic weaknesses in the global financial systems – in particular, the problems of ‘too big to fail’, ‘too interconnected to fail’ and ‘too many to fail’. This refers to the threat to financial stability posed by banks, such as Citigroup and The Royal Bank of Scotland during the Financial Crisis, that were rescued using taxpayer monies, allowing for a somewhat uninterrupted provision of their services, but effectively shifting (most) of their losses to taxpayers instead of the banks' owners or investors. In the words of Harald Waiglein, Director General, Economic Policy and Financial Markets, Federal Ministry of Finance of the Republic of Austria, ‘failing financial institutions were kept on life support, and the hospital bills were sent to the taxpayer ...

Get Legal Data for Banking now with the O’Reilly learning platform.

O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.