Reconstruction of Insolvent Banks, Relying on International Standards and Experiences

Banking activities are always facing with risk and the possibility of insolvency, and this is due to the fact that banks' balance sheets are struggling with potential instability. In the stages when a bank suffers from a financial crisis, if the reform of the financial and operational structure does not work and the bank ceases to pay its debts and this is officially announced by the responsible authorities (banking supervisor or judicial authority), it enters into the assessment period for choice of The method of resolving the bank bankruptcy (restructuring or liquidation). In principle, restructuring is absolutely prior to liquidation, according to the usual procedures in leading countries, from here the bank is in the position of formal administration and the supervisory authority or a special legal entity takes control of the bank and implements restructuring measures and methods. The most common techniques used to restructuring a insolvent bank are: merger or acquisition, purchase- and- assumption Transactions , operations involving the creation of bridge banks, or the separation of a insolvent bank into two Good-bank/bad-bank. Regarding the bankruptcy of large banks with major systemic implications; Temporary nationalization of the bank will be the last resort.