Last Tuesday June 17, 2025, in Oslo, organised by the INRILE (Italian Norwegian Institute of Research for Law and Economics”) was held the Third Italian Norwegian Conference on “The Impact of EU Regulation on Models of Banking and Finance”, where I had the honour and pleasure to appear to give a presentation on “Bank liquidation. Cross-border aspects in Europe according to the UNIDROIT Guide May 2025“. In keeping with the custom of this blog, I offer your readers a brief summary of my presentation:
A) Opening statement
Bank insolvency is a highly unlikely but extremely dangerous scenario, that requires specific regulation and is particularly complex when it involves international financial groups.
This statement can be broken down into other four:
B) Bank insolvency is a highly improbable but extremely dangerous scenario
Economic crises of financial institutions, in particular credit institutions (in addition to investment services companies and insurance companies) are – in terms of risk calculation – very unlikely but very dangerous scenarios. Indeed:
a) First, bank insolvencies are highly unlikely scenarios because there is a special regime of public administrative supervision aimed primarily at ensuring the solvency of such financial institutions and thus preventing them from entering into insolvency situations.
b) Second, bank insolvencies are extremely dangerous scenarios because, when they occur, they damage the legitimate interests of thousands of customers, investors or policyholders, when a cross-sectoral financial conglomerate is involved.
C) It is essential to adapt the regulation of corporate insolvencies to solve banking crises efficiently
At this point we must take into account the approval and publication of the UNIDROIT Legislative Guide on Bank Liquidation. The document approving the Guide by the UNIDROIT Governing Council at its session held in Rome on 20-23 May 2025 begins by outlining its purpose, which is to explain the development and summarize the content of the UNIDROIT Legislative Guide on Bank Liquidation so that the Governing Council can consider adopting the draft instrument and propose the way forward for its implementation. It includes the approved draft Legislative Guide as an Annex.
C.1) Two regulation models
The UNIDROIT Guide distinguishes between two regulation models in force in international law:
(a) The single-track regime established in the US Federal Deposit Insurance Act (FDIA) which constitutes a single-track regime for the management of bank failures and all insured depository institutions in US bankruptcy are resolved or wound up under this regime.
(b) The EU dual-track regime established in the Bank Recovery and Resolution Directive (BRRD) distinguishes between ‘resolution’ and ‘normal insolvency proceedings’, and national implementation by EU Member States takes the form of a dual-track regime.
C.2) Two institutional models
Furthermore, the Guide distinguishes two institutional models for supervising banking crises: the administrative model and the court-based model with administrative involvement.
C.3) Preference and mixture
In the UNIDROIT Guide, there is a subtle preference for the administrative model and the single-track regime and a assumption of mixture of models and regimes.
D) There are two essential factors in the taxonomy of banking crisis regulation
This third statement requires a distinction to be made between:
(a) Liquidation of systemic banks from the liquidation of non-systemic banks.
(b) Restructuring of viable banks from the liquidation of non-viable banks.
E) The winding-up of cross-border banking groups has specific structural and functional features which require special regulation
E.1) First, the winding-up of cross-border banking groups is examined specifically in two chapters of the UNIDROIT Guide that are
a) The group dimension of these bank liquidation procedures is addressed in Chapter 9, which states that the existence of a pure banking group or a cross-sector financial conglomerate does not prevent the implementation of a bank liquidation process, highlighting the necessary coordinated actions between administrative authorities and courts.
b) Cross-border aspects in Chapter 10, which deals with the necessary cooperation and sharing of powers between home and host authorities and the recognition of foreign support procedures and measures, conclude by examining possible grounds for refusing recognition, support, or cooperation, and the liquidation of cross-border banking groups.
E.2) Second, the winding-up of cross-border banking groups has specific structural and functional features which require special regulation based on the following three principles:
a) Cooperation and division of competences between the supervisory authorities of home and host Member States.
b) Recognition of the settlement procedures and measures adopted by the supervisory authorities of the home Member States.
c) The resolution of critical issues such as refusal to cooperate by host Member States’ supervisory authorities.
F) The NOVO BANCO Case
Finally, I end my presentation with a reference to the NOVO BANCO case because it offers a paradigmatic example of a cross-border banking crisis. I referred to two aspects of this case that were:
F.1) Facts
The facts are, in summary, as follows:
a) Banco Espirito Santo S.A. (BES) was a Portuguese bank that had been carrying out banking activities in Spain through a branch.
b) Due to the serious crisis affecting BES, the Board of Directors of Banco de Portugal (BDP) adopted, in a Decision dated August 3, 2014, amended by another decision dated August 11, 2014, the so-called «resolution measures,» consisting of the creation of a «bridge bank» called Novo Banco S.A. (NB) to which the business of BES was partially transferred, for which purpose the assets, liabilities and non-equity items of BES described in Annex 2 were transferred to NB.
c) On 29 December 2015, BDP adopted two Decisions, on the retransfer of liabilities and contingencies defined as excluded liabilities.
F.2) Legal effects
The cross-border legal effects of this NB case have been reflected in the case law of the CJEU and the Spanish Supreme Court:
a) First, in the Judgment of the Court of Justice of the European Union, Fourth Chamber, of 5 September 2024 (Case C-498/2022) (ECLI: EU:C:2024:686) which refers to several disputes brought against Novo Banco, a branch in Spain, relating to the impact on various financial products and services contracts of the restructuring measures adopted with respect to BES and its Spanish branch.
b) Second, in the Judgments of the First Civil Chamber of the Spanish Supreme Court no. 112/2025, no. 109/2025 of 22/01/2025, and no. 216/202, of 11/02/2025, resolve disputes related to the cross-border effects in Spain of the crisis and the resolution of BES in NB.