One of the challenges that arises in resolving a cross-border bank crisis is that crisis resolution frameworks are largely designed to deal with domestic failures and to minimize the losses incurred by domestic stakeholders. As such, the current frameworks are not well suited to dealing with serious cross-border problems.
The absence of a multinational framework for sharing the fiscal burdens for such crises or insolvencies is, along with the fact that legal systems and the fiscal responsibility are national, a basic reason for the predominance of the territorial approach in resolving banking crises and insolvencies.
The Basel Committee’s recommendations fall into three categories:
- The first set addresses the strengthening of national resolution powers and their cross-border implementation.
- The second set deals with ex ante action and institution-specific contingency planning which involves the institutions themselves as well as critical home and host jurisdictions.
- The third set focuses on reducing contagion and limiting the impact on the market of the failure of a financial firm, by actions such as further strengthening of netting arrangements
Report and Recommendations of the Cross-border Bank Resolution Group (pdf file)
