| Author (Corporate) | European Parliament: European Parliamentary Research Service |
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| Publisher | EU |
| Series Title | In-Depth Analysis |
| Series Details | June 2018 |
| Publication Date | June 2018 |
| Content Type | Report |
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Two separate reports from the Economic Governance Support Unit of the European Parliament Directorate-General for Internal Policies of the Union. These document were requested by the European Parliament's Committee on Economic and Monetary Affairs Vol.1: The paper discussed the problem of valuation in bank resolution. In an overview over the most relevant principles of valuation theory, the paper noted the difficulties inherent in valuing risks and illiquidity in holding non-traded assets. Subsequently, the paper briefly reviewed the resolution of Banco Popular Español, and then discussed the need for clarification of the no-investor-worse-off principle, the relation between the price in a sale of business and the presumed outcome in an insolvency procedure, and the difficulties attached to assessing the value of an illiquid asset that is held. The paper concluded with a discussion of the need for time, for valuation and in resolution, warned against a moratorium on withdrawals and payouts, and argued that time pressures would be much reduced if funding in resolution was provided for. Vol.2: This study discussed the challenges concerning bank valuation reports in resolution. The resolution mechanism had three types of valuation reports, respectively to determine whether a bank was failing or likely to fail (valuation 1), to inform the use of the resolution tools including bail-in (valuation 2), and to ensure that the no creditor worse off condition is respected (valuation 3). The first experience with the preparation of valuation reports showed that even with the more formal procedures there were still substantial uncertainties regarding the outcome of these valuations due to organisational, legal and economic challenges. Additional mitigating measures should be considered to reduce the uncertainty. |
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| Source Link | http://www.europarl.europa.eu/thinktank/en/home.html |
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| Subject Categories | Business and Industry |
| Countries / Regions | Europe |
