Sunk in the Atlantic— Going concern and franchise value in [out] EU bank resolution

Abstract

Stubbornly, the current EU bank resolution regime bans both the application of the going concern and the franchise value criteria to appraise the affected credit institutions. Such prohibition defies not only the ethos of bank resolution but also business valuation, whether it is in an insolvency scenario or not. This article aims to explain where this feature roots, how it distorts the entire EU resolution regime, and the disturbing reasons that endorse the legislative framework now in force. Some suggestions for reform will be posed in the context of the European Banking Union’s (EBU) projected reform to address this untenable stay. As suggested by the title —also for the sake of usefulness— a kind of comparison with the US regime will also be made in some passages of the essay, although its in-depth analysis is by no means intended. We do not directly challenge the bail-in metarule ―certainly ancient, and well-known―, but we delve into the ‘who/whom question’, which means to say who bails-out whom in bank resolution. The effort to break the so-called fatal link between banks and sovereigns could give way to a tighter chain between banks and financial markets and the rebound toward the fiscal channel. Moreover, can the connection between money and taxes be broken in our fiat, legal tender currency universe? We do not deal here with related topics like the loss-absorbing and liquidity regulatory requirements, at least directly. Our purpose is to focus on the valuation criteria for entities in resolution as a viewpoint to analyze the EU bank resolution regime.