Principles of Financial Regulation by unknow

Author:unknow
Language: eng
Format: epub
ISBN: 9780192506238
Publisher: OUP Oxford
Published: 2016-08-03T18:30:00+00:00

16

Bank Resolution

16.1 Introduction

Incurring losses is an inescapable risk of running any business, whether financial or non-financial. Those losses may be limited and/or temporary, or they may be sufficient to put the viability of the business in jeopardy. In the private sector, for the general run of corporate businesses, losses are absorbed in the following stylized way.

(a) So long as the company is a going concern, the losses are borne by the shareholders.

(b) If the company enters a bankruptcy (insolvency) procedure, the shareholders are likely to be wiped out and the remaining corporate losses are borne by the company’s creditors, according to their priority ranking.

(c) Some costs of corporate failure are not borne by the company but are externalized onto third parties. However, these costs are normally (but not always) modest.

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