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International Journal of Law and Management

Banking crises and Hong Kong: coordination between regulatory measures and compensation schemes (bailout, deposit insurance and insolvency laws)

Eva K.Y. Kan
( University of London London United Kingdom )
Abstract :

The paper is going to explain the importance of the international cooperation and coordination among supervisory authorities of different countries in event of banking crises. It also suggests the harmonious relationship has to be attained in the adoption of ex ante financial regulatory measures and ex post compensation schemes.In other words, the paper highlights the linkage between ex ante preventive regulatory measures and ex post compensation schemes on the one hand and cooperation among national regulatory and supervisory authorities in globalised financial markets. Although the paper is relevant to most developed and emerging financial markets, it chooses Hong Kong as a context to examine this proposal. In the current literature there are no similar approach linking these two paradigms and examining them in an integrated context.

The paper adopts a conceptual framework after the 2008 global financial crisis and takes Hong Kong, an International Financial Centre in which numerous branches or subsidiaries of foreign financial institutions locate, as an example to examine how the coordination with foreign supervisory authorities being conducted and analyse if the present regulatory framework in Hong Kong effective and sufficient against banking crises. Through review the literature, the important link between ex ante regulatory measures and ex post compensation schemes is found to be significant in adopting proper solutions.

Through analysing the Hong Kong financial regulators’ reports on the collapse of Lehman Brother, the paper finds out that even though there is some weakness in the cooperation and coordination between regulators after the 2008 financial crisis. Further, Hong Kong is still in the progress of proposing bank special resolution regime. While there has been some awareness on the issue of coordination between home and host states regulatory measures, there is still lack of awareness of the connection between regulatory measures and compensation schemes.

Conflict of interests could hardly be prevented in the course of cooperation and coordination among home and host regulatory authorities and the coordination of the important link between ex ante regulatory measures and ex post compensation scheme which involves legal and economic analyses is a challenging task.

The paper’s findings show that there are practical implications for the recent rapid development of special resolution regime for global systematically important financial institutions against future banking crises and for managing the balance between the adoption of financial supervisory laws and special resolution measures.

This paper suggests the harmonious coordination between ex ante regulatory measures and ex post compensation schemes has to be achieved through international context in order to avoid the absurd situations. This conceptual integrated framework presented in the current paper is not touched upon by the existing literature. This important concept is valuable for future research and it is significant to financial regulators, legislators and the government in adjusting policy against banking crises in both developed and developing countries.

Keywords :
Eva K.Y. Kan

Date Deposited : 28 Mar 2015 11:13

Last Modified : 28 Mar 2015 11:13

Official URL: http://www.emeraldinsight.com/journal/ijlma

Volume 57, Number 3, - 2015 , ISSN 1754-243X

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