The failure of cross-border financial firms: new thinking in the aftermath of the financial crisis

Andrew Cornford, Observatoire de la Finance, Geneva, July 2010. Email: andrew.cornford@bluewin.ch

The development of rules for handling insolvencies of financial and non-financial firms with operations in a number of countries (cross-border insolvencies) is a long-standing item on the international regulatory agenda. Progress has been slow owing to the difficulty of achieving agreement concerning the required harmonisation of significantly different existing national laws and definitions and the distribution of the costs of the insolvencies among the countries in which firms affected by the insolvency have a commercial presence. Since the outbreak of the financial crisis the issue has become more urgent. The insolvency of Lehman Brothers brought home with a vengeance the disruptions of financing and payments which can be caused by the failure of a large financial firm with multiple connections (in Lehman’s case 2,985 legal entities in 50 countries). Rescue operations for other large financial firms since the outbreak of the crisis have involved recourse to ad hoc measures which have highlighted the absence of smoother procedures for dealing with such situations that would have entailed lower levels of potentially destabilising uncertainty and possibly lower fiscal costs.