1. CROSS BORDER BANK INSOLVENCY FROM A EUROPEAN UNION PERSPECTIVE Erwin Nierop/ Pedro Gustavo Teixeira The views expressed do not necessarily correspond to those of the European Central Bank

2. Basic principles of EU law
Universality (vs territoriality): home-country has exclusive jurisdiction on bank, branches and assets
Unity (vs ring-fencing): bank and its branches, assets and liabilities elsewhere are treated as a single entity
22/02/2019

3. Basic principles of EU law (cont.)
Equal treatment of creditors across the EU: no preferential treatment of local creditors
Mutual recognition: Decisions of the competent authorities (courts, supervisors, administrative authorities) are recognised across the EU
22/02/2019

4. Scope of application of home-country laws
Procedural and substantive effects of a decision of the competent authorities to declare a bank insolvent
Lodging of creditors’ claims
Verification of creditors’ claims
Ranking of creditors’ claims
22/02/2019

5. Scope of application of home-country laws (cont.)
Assets to be included in bankrupt estate
Distribution of proceeds
The effects of a court judgement and legal proceedings
22/02/2019

6. Employment contracts (lex contractus)
Exceptions
Employment contracts (lex contractus)
Rights on immovable property (lex rei sitae)
Netting (lex contractus)
Repos (lex contractus)
Transactions in regulated markets (lex contractus)
22/02/2019

7. Rules on settlement finality
No retroactive effect of decision declaring insolvency of a participant in a system (“zero hour” rule)
Insolvency of participant in a system is subject to home-country law
However, rights and obligations in connection with participation in a system are subject to the insolvency law which the parties to the system have chosen for the system
Collateral provided to a participant in a system (pledgee) or a central bank is not affected by insolvency proceedings against the pledgor
Rights of a holder of collateral will be governed by the law where the collateral is recorded on a register, account or centralised deposit system
22/02/2019

8. Collateral law
Validity and enforceability of substitution, top-up collateral and close-out netting is ensured
Certainty on the law applicable to establishment and realisation is also ensured
22/02/2019

9. EU legislation, as implemented in national legislation, provides for
Summary
EU legislation, as implemented in national legislation, provides for
high degree of universality
full unity (no ring-fencing)
the legislation itself is of course only applicable within the European Union
but could perhaps serve as an example for cross-border bank insolvencies in globalised financial markets
22/02/2019

10. Outlook: principles for a multinational treaty or convention
Common standards for cross-border bank reorganisations and insolvencies
Recognition of the universality principle
Recognition of the unity principle:
Increased remote access and increased mobility of assets seems to support the equal treatment of creditors without discrimination on the basis of location of creditors and/or assets
22/02/2019

11. Outlook: principles for a multinational treaty or convention (cont.)
No retroactive effect of insolvencies (zero hour rule)
Validity and enforceability of netting arrangements
Irrevocability and finality of cash and securities transfer orders in connection with the participation in payment and securities settlement systems
Easy and rapid realisation of collateral in case of default of the pledger in the context of payment and securities settlement systems
22/02/2019

12. Thank you!
22/02/2019