Bank Restructuring and Cases with Actual or Potential Systemic Implications

Although legislation should require the authorities to observe the principles whenever they deal with an insolvent bank, the law should also provide flexibility to the banking authorities to handle exceptional cases, such as bank failures with systemic implications that may cause disruptions or even the collapse of the payment and settlement systems, may trigger bank runs, or may cause other widespread disruptions in the financial system. If the authorities deem that the failure of a bank has serious systemic implications, they will need to use a restructuring technique that minimizes any systemic risks, even if some of the above principles cannot be fully observed.13

To prevent bank failures without systemic consequences from being treated as cases of a systemic nature, the law should establish the requirements that the authorities must comply with before they can use exceptional legal provisions.

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