Banking Regulation in and for Crisis
In this article, Lydie Cabane, Assistant Professor at the Institute of Security and Global Affairs, and Martin Lodge address the question of how to manage banking crises, a question that has gained prominence since the banking crisis of 2007-2009. This article sets out the rationale for regulating for 'orderly failure', provides for a brief account of the emergence of the EU’s Single Resolution Mechanism, before turning to unresolved, and arguably irresolvable tensions that exist in multi-level crisis management in the case of banking.
- Lydie Cabane, Martin Lodge
- 20 April 2022
- Read the full article here
This chapter deals with a case of radical regulatory innovation as a result of the financial crisis of 2007–2009. Since the financial crisis of 2007–2009, the question of how to manage banking crises has risen in prominence. The considerable financial, social, and political consequences of various governments’ rescue packages established demands for creating more orderly ways of dealing with bank failure, reducing the exposure of states and the taxpayer. Consequently, considerable institutional innovation over the 2010s has led to new banking crisis management mechanisms, including new organizations, new legal regimes, and a new profession, in particular in the European Union context. The emergence of an explicit European banking crisis management has to be understood within the context of different modes of transboundary crisis management and in relation to the various rationales and accounts of bank crisis management experiences. Before the financial crisis, the emerging European regime was characterized by an absence of formal crisis prevention and management powers. Since then, banking crisis management has witnessed the rise of new institutions that illustrate broader trends in crisis management, namely the growing importance of planning and preparation rather than actual firefighting. Besides, the banking crisis management regime is shaped by deep underlying tensions that are shared by multilevel crisis management regimes more generally. To explore these issues, this chapter sets out the rationale for regulating for “orderly failure,” provides for a brief account of the emergence of the EU’s Single Resolution Mechanism, before turning to unresolved, and arguably irresolvable tensions that exist in multi-level crisis management in the case of banking.