New Bank Insolvency Law for China and Europe - Volume 1: China

List of Abbreviations ix
Related Legal Documents xi
Preface xiii

1 Introduction 1

2 Overview of Chinese Bank Insolvency Law 5
2.1 Current Chinese Bank Insolvency Law 5
2.1.1 Background of the Emerging Bank Insolvency Law 5
2.1.2 The Status quo of Rules Relating to Bank Insolvency 6
2.1.3 Attempt to Accommodate a Special Regime for Bank Insolvency in the Commercial Bank Law 7
2.1.4 Inadequacy of the Enterprise Bankruptcy Law to Address Bank Insolvency 7
2.1.5 The Approach to a Bank Insolvency Regime in the Enterprise Bankruptcy Law 2006 10
2.2 Future Chinese Bank Insolvency Law 11
2.2.1 External Factors That May Impact the Bank Insolvency Regime in China 11
2.2.1.1 No More Implicit Guarantee by the State 12
2.2.1.2 No More Use of the Banking System for Government Purposes 14
2.2.1.3 Not Infallible Are the State-owned Banks 17
2.2.2 Some Speculations about the Bank Insolvency Regime 18
2.2.3 Factors That MayAffect the Effectiveness of the Future Bank Insolvency Regime 19
2.2.3.1 Opacity of the Banking System 19
2.2.3.2 A Massive Shadow Banking System 22
2.2.3.3 Banking Regulation Problem 23
2.2.3.4 Other Factors: From an Economic Perspective 23

3 Institutional Framework 25
3.1 The Authority of Financial Supervisors / Resolution Authorities 25
3.2 Government Intervention 27

3.2.1 Macro-prudential Management 28
3.2.2 Assumption of Control 29
3.2.3 Reorganization of Commercial Banks 31
3.2.4 Ordered to Suspend Business and Take Corrective Measures 35
3.2.5 Revocation of Commercial Banks 38
3.2.6 Bankruptcy Liquidation 40
3.3 Influence of Political Executives 42

4 Insolvency Proceedings 45
4.1 Commencement of Insolvency Proceedings 45
4.1.1 Commencement Standard 45
4.1.2 Commencement Application 49
4.1.2.1 Applicant for Commercial Bank Insolvency 49
4.1.2.2 Bankruptcy Administrator 49
4.1.2.3 Procedures for Bank Insolvency 50
4.1.2.4 Debt Repayments in Bank Insolvency Procedures 52
4.2 Ranking of Claims 54
4.2.1 Ranking of Creditors 54
4.2.2 Protection of Creditors 55

5 Management of the Institution 57
5.1 Removal or Replacement of Management 57
5.2 Management of Bridge Institution and Asset Management Vehicle 58

6 Bail-in 61
6.1 Bail-in 61
6.1.1 Interferences with Rights of Shareholders and Creditors 61
6.1.2 The Bail-in Tool 62
6.2 Scope and Sequence of Write Down and Conversion 64
6.2.1 Trigger Event 65
6.2.2 Capital Instruments Containing Write-off Clauses 66
6.2.3 Capital Instruments Containing Conversion Clauses 66

7 Contracts 67
7.1 Financial Counter-Parties 69
7.1.1 Financial Market Infrastructures 69
7.1.2 Structured Finance 71
7.1.3 Derivatives 72
7.1.4 Dis-application of Contractual Rights/Temporary Stay 74

7.1.5 Nullification of Repayment 74
7.1.6 Nullification of Property Transfer 74
7.1.7 Dis-application of Set-off 75
7.1.5 Safeguards for Counter-parties in Partial Transfers 75
7.2 Depositors and Investors 76
7.2.1 Depositors 76
7.2.2 Investors 77
7.3 Suppliers and Employees 77
7.4 Conflict of Laws Issues 78

8 Judicial Review 81
8.1 Institutional Setup 81
8.2 Ex Ante Judicial Approval 83
8.2.1 Reorganization of Commercial Banks 83
8.2.2 Insolvency of Commercial Banks 85
8.3 Right to Challenge Decisions 87
8.3.1 The Government Interventions Which Could Be Challenged in Court 87
8.3.2 The Qualification of a Plaintiff 88
8.3.2.1 Initiated by the Failing Bank 89
8.3.2.2 Initiated by the Creditors of the Failing Bank 90
8.3.3 Right to Challenge the Decisions of Administrators 90
8.3.4 Nationalization 92
8.3.5 Sanction 94
8.3.6 Collective Redress 95

9 Deposit Guarantee Schemes 97
9.1 Organization of Deposit Guarantee Schemes 97
9.1.1 Scope of Insured Deposits 97
9.1.2 Target Funding Level 98
9.1.3 Sources of Deposit Insurance Fund 98
9.1.4 Authorities of the Management Institution 98
9.1.5 Payout Period 99
9.1.6 Protection of Deposits in a Bank Resolution Procedure (Bail-in) 99
9.1.7 Use of Funds of Deposit Guarantee Schemes and Single Resolution Fund in a Bank Resolution Procedure 99
9.1.8 Theoretical Discussions 100
9.2 Position of Deposit Holders 101
9.3 Position of Deposit Guarantee Schemes 102

9.4 Cross-border Issues 102

10 Cross-border Banking Groups and Recognition of Resolution Measures 103
10.1 Treatment of a Cross-border Banking Group in China 103
10.2 Treatment of Non-Chinese Entities in China 103
10.3 Treatment of Chinese Entities Outside China 106

11 International Principles and Standards 109
11.1 Initiatives FSB 109
11.2 National Implementations 110
11.3 The Way Forward 112

12 Conclusion 115