Felix Lessambo
Published: 2024-10-15
Total Pages: 240
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Depending on the circumstances, bank failure may be managed through either resolution or liquidation. Bank resolution is one of the areas of financial system stability monitored and maintained by the Financial System Stability Committee. An effective resolution regime should make possible the resolution of any bank in an orderly manner without severe systemic disruption or exposing taxpayers to the risk of loss. Resolution authorities are required to draw up resolution plans laying out how to deal with a failing bank which is no longer viable and specifying the application of possible resolution tools and ways to ensure the continuity of critical functions. When a bank is no longer viable and a Purchase and Assumption (P&A) cannot be arranged or is not permitted under the applicable legal framework, the bank may have to be liquidated either under the general insolvency framework in place in the country or under a SRR for banks. However, if a bank goes into liquidation, all liabilities (except those exempted from the insolvency estate) fall due and the insolvency estate is protected by the imposition of a collective stay of creditor action (no further enforcement by individual creditors). A trustee is appointed to dispose of the assets and distribute the proceeds among the creditors.