In the post-crisis environment, the new European policy orthodoxy insists on avoiding state-funded bailouts of banks in distress under all but the most exacting circumstances. This is reflected in the two distinct but interrelated sets of norms governing bank resolution actions: The Commission’s norms on state aids in the banking sector as reflected in the Banking Communication of July 2013; and the new special resolution regime for credit institutions and investment firms adopted in May 2014 in the form of the Bank Recovery and Resolution Directive. The paper discusses the anti-bailout objective of the two frameworks, the way in which this is reflected in their operative provisions, and the degree to which the latter result in a truly binding regime, or admit exceptions and variations. It is shown that the overall effect of the provisions is to render outright bailouts almost impossible. Even when an intervention is permitted, this may take place only in prescribed forms and at a late stage within the resolution system’s financing cascade, which insists on substantial bail-in of ailing banks’ private claimholders, amounting to at least 8% of total liabilities, as a prior condition. The only exception is precautionary recapitalization; but this applies only to solvent institutions and cannot cover past losses. It may be wondered, however, whether a policy of strict insistence on bail-in in all cases of undercapitalization is wise. The problem has recently come to a head due to the troubles of the Italian banking system, with its huge pile of bad assets and numerous weak banks. The Italian banking system has a sufficient volume of bail-inable junior debt, thus making bail-in technically feasible. But at what cost?
Christos Hadjiemmanuil is a Professor of International and European Monetary and Financial Institutions at the University of Piraeus, and a Visiting Professor of Law at the London School of Economics & Political Science. He is a member of the Athens Bar Association.
Born in 1964, he studied law at Athens University (LLB.) and University College London (LL.M. and Ph.D.). His first academic appointment was at the Centre for Commercial Law Studies (CCLS) of Queen Mary, University of London (QMW, as it was then known). In October 1997 he joined the LSE Department of Law, where he served until December 2007 as Lecturer, Senior Lecturer and then Reader in Law.
A specialist in European and international financial law and regulation, he has acted as a consultant to the International Monetary Fund (IMF), where he advised in the Global Bank Insolvency Initiative. He has served as member of the Advisory Board of the UNDP’s Regional for Public Administration Reform (RCPAR) for Eastern Europe and the CIS. He has held a number of visiting academic and consultancy positions. He is a member of the Monetary Law Committee of the International Law Association (MOCOMILA) and an initial member of the Academic Board of the European Banking Institute (EBI).
His publications include a monograph on Banking Regulation and the Bank of England (LLP, 1996) and a collected volume on European Economic and Monetary Union: The Institutional Framework (co-editor, Kluwer, 1997). He was also a co-author of European Union Law (Cambridge Univ. Press, 2006). He has written numerous articles and book chapters in the fields of UK, European and international banking and securities regulation, European Economic and Monetary Union and financial law reform.
From May 2004 until September 2007, he served as President and CEO of Hellenic Olympic Properties, the special-purpose company responsible for post-Olympic management of the Athens 2004 Olympic facilities. From September 2007 until December 2009, he was Chairman and CEO of the OPAP S.A., one of Greece’s largest public corporations.
He has been President, and is now Chairman of the Academic Advisory Board of the Athens-based Center for Political Research, Greece’s oldest non-governmental think-tank.