Authored by Federico Lupo-Pasini & Ross P. Buckley

Forthcoming in European Business Organisation Law Review 

Bail-in is quickly becoming a predominant approach to banking resolution. The EU Bank Recovery Resolution Directive and the US Federal Deposit Insurance Corporation Single Point of Entry Strategy envisage creditors’ recapitalizations to resolve a failing financial institution. However, this legislation focuses on the domestic aspects of bail-in, leaving the question of how it would be applied to a cross-border banking group open. Cross-border banking resolution has been historically subject to coordination failures, which resulted in disorderly resolutions with dangerous systemic effects. The goal of this article is to assess whether bail-in would be subject to the same coordination problems that affect other resolution tools, and to discuss the logic of international legal cooperation in bail-in policies. We demonstrate that in spite of the evident benefit in terms of fiscal sustainability, bail-in suffers from complex coordination problems that, if not addressed, might lead to regulatory arbitrage, lengthy court battles and, ultimately, disrupt resolutions. We argue that only a binding legal regime can address those problems. In doing so, we discuss the recent Financial Stability Board’s proposal on Cross-Border Recognition of Resolution Action, and the role of international law in promoting cooperation in banking resolution.