LEE JUNGSOO, A Study on the Introduction of the Prompt Resolution Procedure, KOREAN COMMERCIAL LAW ASSOCIATION, Vol.43, N0.2, pp. 435-498.
<Abstract>
This study aimed at the legal design of a system that can prevent the transition of the crisis at a minimum cost while quickly intervening in a new crisis situation, maintaining the core functions of the bank, and equally sharing the costs of the crisis of insolvent banks. In this study, this was differentiated from the conventional bank resolution procedure and named it the prompt resolution procedure. The introduction of the prompt resolution procedure should first be considered unconstitutional in terms of the legal aspect, but the Constitutional Court and the Supreme Court have judged the existing bank resolution procedure constitutional in terms of the principle of excess prohibition. In the case of prompt resolution procedures, a more cautious approach to the possibility of unconstitutionality is needed, as faster intervention, flexible judgment criteria, and discretion of means are more problematic than conventional bank resolution procedures. If such a system is not prepared in advance, the constitution has no choice but to lean on the right to issue emergency financial and economic orders in an emergency situation in the constitution. In institutional design, the suitability and necessity of the choice of means, and the proportionality between the basic rights of the individual that are violated and the public interest that is pursued, should be considered more carefully. In this respect, this study examined the scope, judgment, means, and procedures of the prompt resolution procedure in detail. The scope of the prompt resolution procedure shall be determined between that of the existing bank resolution procedure and the systemically important financial institutions (‘SIFI’) in the financial system, but in the long run, it would be reasonable to expand the scope of the inclusion of SIFI to match the scope of the prompt resolution procedure. When a financial company becomes insolvent, the supervisory authority decides whether it is insolvent or not in consideration of the financial situation, management behavior, and the possibility of default on payment, but net asset (-) is not essential among the decision criteria, and intervention should be possible even if there is a risk of insolvency. The supervisory authority should select it in consideration of expected costs among the reorganization methods available to the supervisory authority, but for a flexible and timely response, it is necessary to allow the supervisory authority’s discretion in protecting depositors or funding beyond the scope of deposit protection. Meanwhile, it will be necessary to consider simplifying or reducing procedures for the speed of the resolution procedure, while considering court relief and legislation of NCWOL to protect the rights of stakeholders. The principle of fair loss sharing is bound to become a key principle in the prompt resolution procedure along with the principle of minimum cost. It is not desirable not only to contradict the principle of fair loss sharing, but also to consider the possibility of moral hazard by the debtor. In terms of internalizing the loss sharing of creditors, it is necessary to introduce bail-in, and institutionally, a special contribution system is required to be reorganized in advance to bear additional costs due to the prompt resolution procedure.
<Keywords>
bail-out, bail-in, NCWOL, no creditor worse off than in liquidation, bank resolution procedure, prompt resolution procedure, insolvent financial institution, deposit insurance company
LEE JUNGSOO, A Study on the Introduction of the Prompt Resolution Procedure, KOREAN COMMERCIAL LAW ASSOCIATION, Vol.43, N0.2, pp. 435-498.
<Abstract>
This study aimed at the legal design of a system that can prevent the transition of the crisis at a minimum cost while quickly intervening in a new crisis situation, maintaining the core functions of the bank, and equally sharing the costs of the crisis of insolvent banks. In this study, this was differentiated from the conventional bank resolution procedure and named it the prompt resolution procedure. The introduction of the prompt resolution procedure should first be considered unconstitutional in terms of the legal aspect, but the Constitutional Court and the Supreme Court have judged the existing bank resolution procedure constitutional in terms of the principle of excess prohibition. In the case of prompt resolution procedures, a more cautious approach to the possibility of unconstitutionality is needed, as faster intervention, flexible judgment criteria, and discretion of means are more problematic than conventional bank resolution procedures. If such a system is not prepared in advance, the constitution has no choice but to lean on the right to issue emergency financial and economic orders in an emergency situation in the constitution. In institutional design, the suitability and necessity of the choice of means, and the proportionality between the basic rights of the individual that are violated and the public interest that is pursued, should be considered more carefully. In this respect, this study examined the scope, judgment, means, and procedures of the prompt resolution procedure in detail. The scope of the prompt resolution procedure shall be determined between that of the existing bank resolution procedure and the systemically important financial institutions (‘SIFI’) in the financial system, but in the long run, it would be reasonable to expand the scope of the inclusion of SIFI to match the scope of the prompt resolution procedure. When a financial company becomes insolvent, the supervisory authority decides whether it is insolvent or not in consideration of the financial situation, management behavior, and the possibility of default on payment, but net asset (-) is not essential among the decision criteria, and intervention should be possible even if there is a risk of insolvency. The supervisory authority should select it in consideration of expected costs among the reorganization methods available to the supervisory authority, but for a flexible and timely response, it is necessary to allow the supervisory authority’s discretion in protecting depositors or funding beyond the scope of deposit protection. Meanwhile, it will be necessary to consider simplifying or reducing procedures for the speed of the resolution procedure, while considering court relief and legislation of NCWOL to protect the rights of stakeholders. The principle of fair loss sharing is bound to become a key principle in the prompt resolution procedure along with the principle of minimum cost. It is not desirable not only to contradict the principle of fair loss sharing, but also to consider the possibility of moral hazard by the debtor. In terms of internalizing the loss sharing of creditors, it is necessary to introduce bail-in, and institutionally, a special contribution system is required to be reorganized in advance to bear additional costs due to the prompt resolution procedure.
<Keywords>
bail-out, bail-in, NCWOL, no creditor worse off than in liquidation, bank resolution procedure, prompt resolution procedure, insolvent financial institution, deposit insurance company