The Enemies of Orderly Resolution of Banks : What is Needed?

Banks are regarded as special institutions, and regulated and supervised heavily than other institutions. Nevertheless, banks fail like any other commercial entities, and will continue to fail. Given its effects on the society as well as national and international financial systems, bank failure becomes a policy concern, and is expected to be managed by public authorities. However, bank failure management structures generally suffer from lack of a clear legal framework, and are built up by too-big-to-fail policy, regulatory forbearance, and government intervention and bail-outs. The implementation of these policies has led to either disorderly failure of banks or the use of taxpayers' money via rescue packages. Orderly resolution should be seen as an important alternative to disorderly failure and government safety net. This article elaborates regulatory forbearance and too-big-to-fail policy which have become a source of moral hazard for years, and explores the potential counter policies and mechanisms to address these issues