Vol 3 (2006) - Issue 3

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The Insolvency of Van Der Hoop Bankiers: EU Banking Law in Action

1. Introduction
Even though banking probably goes back to the Babylonians,humans have traditionally retained their money themselves. Only relatively recently have people started to bring their money to banks, based on nothing more than an obligation by that bank to return the same amount. And since individuals and companies are willing to save their money with a bank, banks are in a position to re-invest. This process largely keeps modern economies going.
The very basis of that process is, however, the people’s trust that their bank will return an amount equal to the amount saved (but not necessarily the same coins and banknotes). If a bank defaults on that basic obligation, the eventual result may very well be that the account holders lose all their money. Insolvency of a bank is a systematic risk and therefore potentially has a much bigger impact on the economy than insolvency of an individual or an “ordinary” company. Throughout modern history, depressions – local and global – only became really serious when banks started to default. States realise that there is a need to prevent banks from defaulting and to intervene with defaulting banks in order to prevent deterioration.
Nowadays, there is a network of banking supervision instruments. Virtually every jurisdiction has its own credit supervision rules. On an international level, the Basel Accords impose certain standards upon banks. Within the European Union, banking supervision has to a large degree been harmonised. This has been done in the form of directives, which have been implemented by means of national credit supervision laws. The use of directives has left considerable space for the member states to enact special provisions for particular situations not covered by EU law. In the period between 1977 and 2000, the EU has mainly established rules as to the minimum capital, solvency ratios and the internal organisation a bank should have. These have now been codified in the Consolidated Banking Directive. In 2001, Directive 2001/24 on the Reorganisation and Winding Up of Credit Institutions (the Reorganisation Directive) was adopted.