A Comparative Study of Structured Early Intervention for Banks in the United States, the United Kingdom and China

Abstract

Banks have always been key players in the financial sector nationally and internationally. After the Global Financial Crisis 2007-2009 (GFC), many countries have gone through reforms of banking regulatory frameworks, especially focusing on mechanisms of early identification and management of banks in distress at early stages (structured early intervention for banks). These mechanisms aim to equip banking regulators with chances and resources to take corrective measures to troubled banks before their financial conditions continue to deteriorate. The United States adopted such a mechanism, Prompt Corrective Actions (PCA), during the Savings and Loans Crisis in the 1990s. The United Kingdom has reformed its bank regulatory framework and adopted a similar mechanism, Proactive Intervention Framework (PIF), to manage distressed banks before risks have been materialised, after the GFC. China has been in the process of designing and reforming a particular mechanism for early intervention of troubled banks.
However, existing literature rarely provides detailed and comprehensive breakdowns and analyses of structured early intervention for banks as to what components should be considered as essential and what types of components are effective in the context of early intervention for banks. For China, establishing a tailored mechanism of structured early intervention for banks is necessary, since the stability of the Chinese banking sector, with a great number of banks with global significance, is not only important for China but also for the stability of the international banking sector.
Therefore, this thesis provides a detailed breakdown of important components of structured early intervention for banks, namely triggering events and corrective actions, on the basis of current US, UK and Chinese practice, from a comparative law perspective. In particular, this thesis analyses what types of components of structured early intervention for banks are effective and suitable for the Chinese banking regulatory framework and proposes a specific mechanism for Chinese structured early intervention for banks.