Legal Differences Undermine International Financial System

Differences in countries’ legal arrangements for coping with distress in financial institutions create vulnerabilities in the international financial system, according to a new report released by several large central banks and international organisations. The cross-country report looks at approaches in various countries for dealing with distressed financial institutions. It concludes that significant efforts are being made on several fronts to formalise cooperation between countries and to reduce legal uncertainty in cross-border insolvencies. It also describes the important role of international judicial cooperation in facilitating the resolution of cross-border insolvencies. The report stresses that continued substantial efforts are needed to promote gains in legal certainty, efficiency and reduced systemic vulnerabilities for the international financial system. Legal and economic experts contacted by the report’s authors noted that differences in the way national legal systems strike a balance among the three goals of systemic stability, equity and efficiency can complicate the resolution of globally active institutions.

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