Policy Workshop on the Cross-Border Resolution Policy: Issues & Options

Wednesday, July 25, 2012
Jon M. Huntsman Hall, University of Pennsylvania

PRESENTERS

Kern Alexander, M.P. Azevedo, Rodgin Cohen, Darrell Duffie, Randall Guynn, Richard Herring, Tom Huertas, Eva Hüpkes, Thomas Jackson, Jan Krahnen, Harvey Miller, Roberta Romano, Daniel Ryan, David Schraa, John Simonson, David Skeel, David Wall, Peter Wallison

ISSUES DISCUSSED

Members of the resolution project and others met to discuss aspects of the resolution of financial institutions across international borders.

Richard Herring began the first session of the meeting by overviewing the key challenges associated with cross-border resolution, and was followed by Harvey Miller, who outlined what could have been done to prevent the collapse of Lehman Brothers. Miller also pointed out important things to keep in mind in future regulation and resolution of large financial institutions, which should have been learned from the Lehman collapse.

The next session started with Eva Hüpkes discussing the role of the Financial Stability Board (FSB), including their key priorities and key attributes, as well as the primary difficulties the FSB faces. Jan Krahnen followed by outlining some of the recent issues and challenges to banking in Europe, such as the harmonization of capital requirements and that how to ensure bail-in ability and centralizing resolution authority. Daniel Ryan discussed U.S. banks’ selfproposed plans of resolution and the advantages and disadvantages of having banks generate these proposals, both absolutely and relative to the rest of the world. David Schraa then shared the position of the Institute of International Finance on cross-border resolution, including their fundamental positions and the contents of their report “Making Resolution Robust.” Darrell Duffie concluded this session by making various policy recommendations, pertaining in particular to who should bear exposure in various transactions and the importance of transparency for investors.

John Simonson and David Wall began the third session by outlining Title 1 and Title 2 of the Dodd-Frank Act, the key objectives of the resolution strategy, and the key challenges it faces. Randall Guynn followed by identifying the top eleven criticisms that are generally raised against Title 2, and argued whether each was a valid criticism or not.

Beginning the next session, M.P. Azevedo discussed the key areas of international cooperation that are needed for cross-border resolution to be effective, as well as the scope of many crossborder resolution issues. Tom Huertas addressed how resolution procedures between the U.S. and U.K. could be harmonized, specifically regarding the importance of liquidity, investor clarity, advanced planning and speedy resolution, and harmonized expectations. Kern Alexander then discussed the resolution approaches of the U.K. and European Union, as well as their implications upon cross-border resolution with the U.S.

Thomas Jackson began the concluding session on resolution procedures by explaining the Chapter 14 proposal of the resolution project group. David Skeel followed by providing some questions and important points pertaining to resolution to keep in mind moving forward. Peter Wallison then put forth a proposal for cross-border resolution that he referred to as the “Debtor Selection System,” where the financial institutions are able to select what country’s insolvency laws they would like to abide by and treaties are negotiated across borders. Roberta Romano followed by discussing how the issuer choice regime in state competition for corporate charters has worked, and ways in which it can be compared to financial institution resolution. Rodgin Cohen concluded by reiterating the importance of discouraging ring-fencing in any cross-border resolution, and by stating that having Chapter 14 as an option to Title 2 is surely a good thing, but argued that replacing Title 2 entirely by Chapter 14 may not be the best course of action.

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