This paper discusses the insolvency liquidation of a multinational bank using the Bank of Credit and Commerce International S.A. (BCCI S.A.) as a case study. It is based on a review of the events that occurred after the decision to close the bank was taken and an analysis of insolvency liquidation laws in Luxembourg, the United Kingdom and the United States.¹ The purpose of the analysis is to help supervisors shape their goals, assess their responsibilities and refine supervisory practices in the light of the issues that could surround the failure of a multinational bank.

This topic has proved to be complex. A survey of the laws of just three countries has identified a number of basic issues the study group believes could arise in the insolvency of any multinational bank. The resolution of these issues in any particular case, however, will depend upon the interaction of the laws of the various jurisdictions involved. The study group's objective in this paper is to make general observations which may be useful to supervisors.

Part I and the Annex of the paper provide background. Part I discusses the key legal concepts underlying Part II - the implications for bank supervisors arising out of the bankruptcy of a multinational bank. Part III provides some observations on netting and payment systems based on the BCCI closure. The Annex reviews the structure of the BCCI group of companies and the story of its liquidation up to 31st December 1992.

Reflecting the fact that there is no internationally-agreed regime for the liquidation of an insolvent multinational bank, the study group's work revealed a number of areas in which uncertainty and a potential for conflict can arise in the closure and liquidation of a multinational bank. In particular, the study group made the following observations with implications for bank supervisors, which are discussed in Part II: A) when closing a multinational bank, supervisors should pay attention to the nature and timing of communications among themselves and of their communications with creditors, shareholders and management; B) the nature of liquidation rules may be relevant to the manner in which multinational banks are supervised; C) differences in liquidation rules across jurisdictions in a winding-up can affect returns to depositors and other creditors and the operations of deposit protection schemes; and D) coordination and cooperation between liquidators can affect the returns to creditors in a liquidation and can be affected by the role of supervisors in a liquidation.

Footnote:

1. Any reference to the law of the United Kingdom is a reference to the law of England and Wales; the law of Scotland is not considered. The analysis of US law focuses on state law in New York and California and federal law.

I. Summary of key legal concepts

II. Observations with implications for bank supervisors

III. The implications of the BCCI closing on payment and netting

Annex
Background and history of liquidation