Resolving Bank Failures in Argentina : Recent Developments and Issues
Policies and procedures to resolve bank failures have evolved significantly in Argentina since the introduction of currency convertibility in 1991, and particularly in reaction to the 1995 tequila crisis, which exposed the inadequacy of the bank ex...
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2015
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| Online Access: | http://documents.worldbank.org/curated/en/2000/03/438161/resolving-bank-failures-argentina-recent-developments-issues http://hdl.handle.net/10986/22333 |
| Summary: | Policies and procedures to resolve bank
failures have evolved significantly in Argentina since the
introduction of currency convertibility in 1991, and
particularly in reaction to the 1995 tequila crisis, which
exposed the inadequacy of the bank exit framework in place
then. The author reviews the institutional changes
introduced in Argentina in 1995 to handle bank failures more
effectively, particularly the creation of the deposit
guarantee scheme and the procedural framework for resolving
bank failures, embedded in Article 35 of the Financial
Institutions Law. This framework enables the Central Bank to
carve out the assets and privileged liabilities of the
failing bank and transfer them to sound banks, thereby
sending only a residual balance sheet to judicial
liquidation. Subsequent refinements in the application of
Article 35 procedures eventually led to current Argentine
practice. The author examines this practice in detail by
considering the handling of the recent failure of Banco
Almafuerte. The author assesses a number of issues that
arise from the Argentine model of bank failure resolution,
taking into account both country-specific circumstances and
more general concepts and concerns. He emphasizes the
potential tradeoffs between reducing contagion risk,
limiting moral hazard, and avoiding unnecessary destruction
of asset value; the implications of priority-of-claims
rules and least-cost criteria; the pros and cons of
alternative organizational and institutional arrangements;
and the need for legal security. Finally, he outlines two
prototypical approaches to striking a balance between rules
and discretion, an issue underlying much of the ongoing
policy discussion on alternative bank exit frameworks. |
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