Henk Boogaard

The research question analyzed in this dissertation is as follows:

"Are the legal structure and capital requirements of the current bail-in system sufficient to protect the interests of stakeholders?"

This question can be divided into an economic and a legal question, namely:

1. How will the financial interests of stakeholders be met after the financial crisis of 2008 in case of immediate provisions and resolution of failing financial companies? (Legal question);

2. Are the capital requirements, imposed after the 2008 financial crisis on financial companies, sufficient to prevent that, in case of failing or likely to fail of (a) financial institution(s), that the taxpayer must pay the bill again? (Economic question)

The Dutch Civil Code imposes requirements on the legal entity practising the banking business with regard to the protection of equity. The annual accounting law and the IFRS ensure that a responsible opinion can be formed about the capital, the result, the solvency and liquidity of the legal entity concerned. The term "credit institution" needs to be clarified in connection with the need to create a clear distinction between banking and shadow banking. To restore confidence in the banks, the European banking union was established in 2012. The union can play an important role in organizing adequate supervision and crisis management. The principle of the banking union is to minimize the costs of the failure of banks and to exclude an appeal to the taxpayer as much as possible. Basel III has improved the quality of the legally required banking capital and increased its level. In addition, a minimum leverage ratio has been implemented to limit excessive leverage. An international framework has been introduced to limit excessive liquidity risk. Basel IV has revised the risk approach. With regard to taxation, the European member states have reached an agreement that for banks the interest deduction on loan capital is limited to 92% of the balance sheet total. From a tax perspective, it is still more advantageous to finance with borrowed capital, and this does not encourage equity formation. With regard to the bank tax, there is a risk that it will be considered as the lump sum payment for an implicit state guarantee. This could cause moral hazard. The annual payment to bank tax could in my opinion better be used as a mandatory payment in the SRF. From the level of this fund it is uncertain whether it is sufficient to absorb the consequences of a system crisis. During the time when there is no European DGS system in force, the national system will have to guarantee the deposits concerned and it cannot be ruled out that in case of a systemic crisis afterwards an appeal is made to the taxpayer. In addition to the resolution in accordance with the BRRD directive and the SRM regulation, in exceptional cases the Dutch Minister of Finance has the power under the Financial Supervision Act to take immediate measures to decide on the stability of the financial system and to expropriate assets of the enterprise concerned. In the meantime, the Supreme Court of the Netherlands has ruled on a generally binding method for determining the value of the expropriated instruments.

Normal bankruptcy processes are not suitable to deal effectively with the failure of systemic banks. This circumstance and the financial crisis have demonstrated the need for an alternative recovery and resolution system that does not jeopardize financial stability while at the same time preventing moral hazard and better avoiding exposure of taxpayers to losses. It is possible now to intervene in a timely manner in private-law relationships to guarantee the continuity of critical functions.