A comparative comment on the banking bailout literature

In the past decade, the literature on banking, financial law and regulation, the most recent financial crisis, financial stability, and bank insolvency has grown substantially. However, there is still a strong need for additional legal analysis of these topics for several reasons.1 First, much of the scholarly work pertains to the area of finance and economics and does not directly address legal considerations. Second, given the overwhelming abundance of literature, there are surprisingly few articles discussing the appropriate theoretical framework for analyzing bank bailouts (the “big picture”). Most of the literature is focused on particular topics within this area, such as systemically important banks, systemwide crisis funds, the reasons for the 2008 and so on2. Third, much of the theoretical work undertaken is not specifically focused on the financial sector. Fourth, there is a gap in the literature regarding the comparative analysis of bank bailout methods and method-based classifications of bank bailout cases. Finally, the field of Law and Economics is better developed in the U.S. than in the selected European jurisdictions, where the separation of legal studies and economics within social sciences is more pronounced. 3 

Bank bailouts remain highly controversial more than a decade after the outbreak of the most recent financial crisis. Prominent scholars, such as Joseph Stiglitz, argue that from economic standpoint, banks should not be bailed out in the first place.4 Others contend that it is cheaper for society to rescue failing banks than to allow the financial system to collapse while sitting idly by.5 This is a hypothetical argument, as no major nation has remained inactive in the midst of a financial crisis since the U.S. adopted a hands-off policy in the early 1930s.6 Carmen Reinhart and Kenneth Rogoff researched the cyclical financial crises across centuries and many jurisdictions, and they concluded that financial crises are unavoidable. Financial crises have some common traits but are unpredictable in many respects.7 As Timothy Geithner observed: “financial crises can’t be reliably anticipated or preempted, because human interactions are inherently unpredictable. But there is a lot that can be done in advance to make crises less damaging (…),”. 8 Reinhart and Rogoff conclude that cycles in equity market prices and housing prices are highly relevant from the point of view of banking crises, and more importantly, that deep recessions are associated with severe banking crisis.9 

In the legal literature, there are two primary rationales for bank bailouts. Adam J. Levitin argues that bailouts are based primarily on political considerations,10 while Eric Posner and Anthony Casey argue that bailouts should be decided based on a cost-benefit analysis.11 Katharina Pistor’s theory is in line with Levitin’s approach to some extent, but she narrows down the ‘political reasons’ for bailouts to a single motivation; rescuing the system from collapse. I concur with Pistor in this respect; governments predominantly intervene in the economy in order to avoid the financial sector’s systemic failure and its consequences for the real economy. Pistor also argues that the financial sector is a hybrid, imbued with public and private interests, and that its public aspects are the most apparent in a financial crisis situation.12  

Pistor’s argument is contested in my book, Banking Bailout Law: A Comparative Study of the United States, United Kingdom and the European UnionThe fact that the financial sector serves a public interest, and that financial law is a hybrid of public and private considerations, does not make the financial sector a field that is primarily public in nature. There is certainly a synthesis of public and private law in banking and financial law, so it has a hybrid nature, similar to labor law, that is also partly public and partly private in the continental classification.13 Even so, large-scale government interventions in the financial sector are relatively recent in most nations, and they were never planned to be permanent.  

Governments in the jurisdictions studied in my book, namely, the U.S., U.K., the EU, Spain, and Hungary intend to pull back from the financial sector.14 Empirical research indicates that, as a general matter, governments are not good at managing banks. Moreover, increased state ownership, decreased competition, and a decrease in the number of market players in the financial sector do not make the banking system more stable or more resistant to financial crises.15 Governments can exercise – as they already do – extensive control over the financial sector through law and regulation. Government ownership of banks in the long run is not only unnecessary but also inefficient. The avoidance of long-term government ownership  was a prominent feature in U.S. bank bailouts, and my book argues that it was one of the elements explaining the greater success of U.S. bailout policies. With some exceptions, the U.S. government got rid of its ownership interests in bailed-out financial institutions as soon as possible. The majority of the rescued companies were not taken over, government officials were not appointed as permanent members of boards of directors of rescued banks (they were present as observers), and the government did not dictate executive compensation policies permanently (but rather limited executive compensation only as long as financial institutions received TARP funds). In short, the U.S. government exercised the minimum necessary control over the rescued banks. 

In a European context, Julia Black argues that governments exerted much stronger control over the financial sector during the 2008 crisis.16 The legislature and the judiciary supported the government’s crisis management policies in many European jurisdictions, including the U.K. As a consequence of the crisis management policies of European governments, a sovereign debt crisis erupted in several countries by 2011. The legal responses to that crisis included constitutional debt-ceiling rules. Those rules seek to curtail the ability of governments to increase public debt, given the already high level of debt in those jurisdictions. My book argues that constitutional debt-ceiling rules are a rational legal response to excessive governmental spending, and that they may be effective in times of business-as-usual. Also, they have a specific purpose in the EU context, as they are necessary to facilitate the long-term convergence of EU member states’ fiscal situations. However, in severe crises, constitutional debt-ceiling rules do not prevent governments from bailing out banks and they may even induce further panic. When Walter Bagehot considered the possibility of setting a limit to the lender-of-last-resort reserves of central banks (which sends the same message to financial markets as constitutional debt-ceiling rules), he warned that any “legal limit of reserve [lending authority] would be a sure incentive to panic.”17 

In terms of how to manage future bank bailouts, there are two main proposals in the literature. The first is advocated by Jeffrey N. Gordon and Christopher Muller, and it suggests the creation of an industry-funded insurance mechanism by establishing a permanent crisis fund for providing emergency loans or financial guarantees.18 The alternative proposals call for publicly funded solutions. Jeffrey Manns proposes the establishment of a permanent state agency that would serve as an ‘investor-of-last-resort.’19 Kathryn Judge proposes authorizing an Emergency Guarantee Authority that would empower the Treasury to provide emergency guarantees “in order to halt a financial panic long enough to give policymakers the time they need to devise a longer-term solution.” Eric Posner suggests that Congress should grant the Federal Reserve broad crisis-related, lender-of-last-resort powers.  

Philip Wallach is one of the supporters of an insurance mechanism. He analyzes the 2008 crisis and the most debated bailouts (the de facto nationalization of AIG, Fannie Mae, and Freddie Mac) from the point of view of legality, legitimacy, and the rule of law. He argues that the lack of rule of law, even for a limited time-period, undermines society’s trust towards the state; therefore, it is very important to avoid such situations.20 His thoughts are especially relatable in the context of the Hungarian Government’s interventions following the 2008 crisis because several state measures retrospectively intervened in lawfully concluded private contracts. 

The idea of a systemic risk insurance fund financed by fees on large financial institutions was included in the House bill that served as the initial legislative proposal for the Dodd-Frank Act. However, the systemic risk fund was removed from the legislation prior to its final passage.21 Instead, Title II of the Dodd-Frank Act calls for a Treasury loan to finance rescues of systemically important financial institutions, followed by an after-the-fact assessment on large financial firms, if necessary.22 As per the industry-funded Orderly Liquidation Authority, bailout expenditures could be recovered ex post from systemically important financial institutions. This mechanism has remained untested to date. The availability of Treasury loans and the assumption that those loans will be paid back by the financial industry reflects a general assumption that taxpayer bailouts can be avoided – an assumption that is reflected in several provisions of the Dodd-Frank Act.  

The advocates of a permanent crisis fund recognize the necessity of bank bailouts, and they argue that this solution would impose the costs of future bank bailouts on large financial institutions as a whole. Hence, the costs of future bank bailouts would be pre-funded, instead of having ad hoc bailouts that are funded by taxpayers.23 Geithner, a prominent opponent of this industry-funded systemic risk insurance fund approach, argues that the moral hazard effect of such a fund would be greater than its advantages. He argues that a pre-funded systemic crisis fund would cause banks to engage in riskier business activities than they would otherwise do.24 

Among the supporters of an insurance plan, some argue that it should be funded by the financial sector, while others advocate that it should be funded from the public budget. Unlike Gordon and Muller, Wallach proposes funding from the public budget.25 He argues that with the bank bailouts we need to prevent a systemic failure and its detrimental consequences on the whole economy and society. Some elements of the insurance-based approach were present in the U.S. legal-regulatory framework during the most recent financial crisis; vis-à-vis its insured institutions the FDIC had a credit line with the Treasury, and its own funds were also available and were used for bank bailouts. However, in the post-2008 era, the Dodd-Frank Act significantly limits the possibilities of the FDIC and the Treasury in this respect.26 

The EU has recently promulgated the system-wide, insurance-based approach in two ways. This is a major difference between the financial architecture of the U.S. and that of the EU.27 The originally temporary European Stability Mechanism (“ESM”) was available for bailout purposes in a limited manner, only for the euro area (see the 2012-2013 ESM bailout of the Spanish banking sector). The ESM has become a permanent entity, and there are plans to extend its bailout functions. My book contends that a permanent and better-funded ESM is essential, as the 2014 Bank Recovery and Resolution Directive (“2014 BRRD”) does not provide effective solutions for an upcoming financial crisis in Europe.28 Georges Ugeux points out a further chief malady of the 2014 BRRD: it gives floor to a variety of interpretations, and politics often plays a role in the European authorities’ decisions. This can be exemplified by the 2017 Italian bank bailout cases.29 

The other way that a system-wide insurance approach has been implemented in the post-crisis financial architecture of the EU is the Single Resolution Mechanism (‘SRM’). The SRM is a fully centralized decision-making mechanism for bank recovery and resolution in the euro area, which will be fully functioning from 2024.30 The ECB has a crucial role as the governing body of the SRM, and in assessing whether a bank is likely to fail. Unfortunately, because of political and structural reasons it was not possible to implement a solution that would have built upon the evolving European Deposit Insurance Scheme (that will also be fully functioning from 2024). This, in combination with the ECB’s limitations, such as its prohibition of monetary financing, makes future EU-level financial crisis-management efforts more complicated.31 In my book, I argue that it would have been a more cost-efficient solution to set up only one system of funds, instead of launching two parallel schemes, one for deposit insurance and one for bank failures. Euro area member states have stronger cooperation in the case of both schemes as compared to non-euro area member states. Hence, elements of the insurance-based approach are present in the EU’s legal framework but in an unfinished and fragmented manner. 

The second proposed solution is the establishment of a permanent, independent state agency that would serve as ‘investor-of-last-resort.’ This second approach is supported by Manns, Judge, and Posner, among others.32 Manns recommends the institutionalization of a long-term, investment-oriented approach with the clear definition of the conditions for aid. He calls for establishing an independent agency to serve as an investor-of-last-resort, which would make bailouts contingent on beneficiaries sharing both risks and long-term returns with the taxpayers. While this approach also recognizes the unavoidable nature of bank bailouts, its disadvantage is that it does not incorporate an important ‘element of success,’ of the U.S. approach applied during the 2008 crisis; withdrawing from the financial sector as soon as possible. Ten years after the outbreak of the 2008 crisis governments and central banks are still struggling with how to sell the assets, stock, and bonds that they have purchased (see, for example, quantitative easing (QE) on both sides of the Atlantic).33 And this solution does not provide a prompt exit strategy for governments. Also, there is empirical evidence that in the case of stronger budgetary or ownership-ties between the financial sector and governments the probability of future bank bailouts and excessive public debt increases.34 

The 1873 ‘Bagehot Dictum’ is frequently referenced in the literature. In his book – based on the learnings from the 1866 financial panic in the U.K. – Bagehot developed a four-part formula (dictum in Latin) according to which, in financial panic, central banks should lend early and freely (without limit), at a penalty rate, against good collateral, and to solvent firms. The Bagehot Dictum was more faithfully observed by the Federal Reserve, compared to the ECB, during the 2008 crisis which contributed to the more successful bank bailouts in the U.S. Based on the analysis of the case studies in my book, I argue that the Bagehot Dictum’s four elements should be applied not only to central bank-orchestrated bailouts but also to all public bank bailouts. Because of its relevance Bagehot’s own words are quoted here:35 

time is the very essence, [a crisis] requires immediate, prompt decisions upon circumstances when they arise, in many cases a decision that does not admit of delay for consultation. [In a crisis the Bank of England should lend] freely and generously (…) at the rate of interest so raised, the holders—one or more—of the final Bank reserve must lend freely. Very large loans at very high rates are the best remedy (…) loans should only be made at a very high rate of interest. This will operate as a heavy fine on unreasonable timidity, and will prevent the greatest number of applications by persons who do not require it (…) advances should be made on all good banking securities, and as largely as the public ask for them. The reason is plain. The object is to stay alarm, and nothing therefore should be done to cause alarm. But the way to cause alarm is to refuse someone who has good security to offer. The news of this will spread in an instant (…) and will intensify the terror. No advances indeed need be made by which the Bank will ultimately lose. (…) That in a panic the bank, or banks, holding the ultimate reserve should refuse bad bills or bad securities will not make the panic really worse; the ‘unsound’ people are a feeble minority (…) the majority to be protected, are the ‘sound’ people, the people who have good security to offer. If it is known that the Bank of England is freely advancing on what in ordinary times is reckoned a good security—on what is then commonly pledged and easily convertible—the alarm of the solvent merchants and bankers will be stayed.” 

The preventive leg of banking bailout law has developed significantly in the past ten years, but its crisis-management-related leg is underdeveloped. This is primarily a consequence of the strong anti-bailout stance of the past decade which is reflected in the provisions of the post-2008 legal-regulatory framework. More developed crisis-management-related regulations will strengthen the rule of law and provide more predictability for all stakeholders. Ex ante insurance mechanisms result in more systemic stability, extra costs for the financial sector (ultimately, for the taxpayer) but also decrease future bank bailout probability. The ex-post recovery of bank bailout spending from systemically important banks (as per current U.S. law) are less expensive in business-as-usual environments. However, such a regime requires a legal-regulatory framework where there is space for creative governmental interventions in crisis-times, including central banks’ lender-of-last-resort actions. Some of the further recommendations I make in my book include: nationalizations should be avoided in the future as they are loss-making; Bagehot’s Dictum should be observed in all types of bank bailouts; policymakers should focus on the exit strategy in every bank bailout measure from day one. 

To overcome the misconception built into the post-2008 legal-regulatory frameworks – that bank bailouts are unavoidable – I propose a novel approach in my book: let us consider the bank bailout-related provisions that penetrated to numerous areas of law (e.g., constitutional debt-ceiling provisions, deposit insurance, investor compensation, consumer protection, public finances, monetary and fiscal regulation) as the building blocks of the nascent banking bailout law. This approach enables a more coherent theory, further develops the crisis-management-related leg of banking bailout law, and contributes to a deeper understanding of the very phenomenon of bank bailouts. 

Virág Ilona Blazsek is a banking and finance attorney currently based in New York. The views expressed herein do not reflect the positions of the institutions to which Virág affiliates. Her book is available here. Virág is grateful to Professor Emeritus Arthur E. Wilmarth, Jr. of the George Washington University School of Law for his helpful comments. 

1 KATHLEEN C. ENGEL & PATRICIA MCCOY, THE SUBPRIME VIRUS: RECKLESS CREDIT, REGULATORY FAILURE, AND NEXT STEPS, (Oxford University Press, Oxford, U.K., 2011); MCLEAN, B., NOCERA, J., ALL THE DEVILS ARE HERE, The Hidden History of the Financial Crisis, (Portfolio/Penguin, New York, NY, 2010); THE FINANCIAL CRISIS AND THE REGULATION OF FINANCE, (Green, Pentecost, Weyman-Jones (eds.), Edward Elgar Publishing, Cheltenham, U.K., 2011); LEGAL CHALLENGES IN THE GLOBAL FINANCIAL CRISIS, BAIL-OUTS, THE EURO AND REGULATION, (Wolf-Georg Ringe, Peter M. Huber (eds.), Hart Publishing, Oxford, U.K., 2014). 

2 For the issue of too-big-to-fail banks see, for example, WILMARTH, A, TAMING THE MEGABANKS: WHY WE NEED A NEW GLASS-STEAGALL ACT (Oxford University Press, Oxford, U.K., 2020). [Wilmarth argues in favor of a new Glass-Steagall Act and resorting to antitrust tools and breaking up megabanks if the legislator would not act against the current market concentration which threatens systemic stability and may cause enormous taxpayer expenses in a next crisis.]; TUCKER, P, UNELECTED POWER: THE QUEST FOR LEGITIMACY IN CENTRAL BANKING AND THE REGULATORY STATE (Princeton University Press, Princeton, NJ, 2018); Judge, K, Guarantor of Last Resort, TEXAS LAW REVIEW, Vol. 97 Iss. 4 (March 2019); Manns, J, Building Better Bailouts: The Case for a Long-Term Investment Approach, 63 FLA. L. REV. 1349 (2011); Coffee, J C, Jr, Ratings Reform: The Good, The Bad, and The Ugly, 1 HARV. BUS. L. REV. 231, 234 (2011); Coffee, J C, Jr, What Went Wrong? An Initial Inquiry into the Causes of the 2008 Financial Crisis, 9 J. OF CORPORATE LAW STUDIES (Apr. 2009); Squire, R, Insolvency vs. Illiquidity in the 2008 Crisis and the Congressional Imagination, in SQUIRE, R, CORPORATE BANKRUPTCY AND FINANCIAL REORGANIZATION, 569-583 (Aspen Casebook Series, Wolters Kluwer, 2016); TOOZE, A, CRASHED: HOW A DECADE OF FINANICAL CRISIS CHANGED THE WORLD (Viking Penguin Random House, New York, NY, 2018); Block, C D, Overt and Covert Bailouts: Developing a Public Bailout Policy, 67 IND. L.J. 951, 956-58 (1992); KIRALY, J, THE SIDE WIND OF THE TORNADO: A PERSONAL STORY OF THE CRISIS, 2007-2013 [in Hungarian: A tornádó oldalszele: Szubjektív válságtörténet, 2007-2013] (Park, Budapest, Hungary, 2019); Lastra, R M, & Wood, G, The Crisis of 2007-2009: Nature, Causes, and Reactions, 13 Journal of International Economic Law, 531-550 (2010); ADAM J. LEVITIN, SUSAN M. WACHTER, THE GREAT AMERICAN HOUSING BUBBLE: WHAT WENT WRONG AND HOW WE CAN PROTECT OURSELVES IN THE FUTURE (Harvard University Press, Cambridge, MA, 2020). 

4 Evans-Pritchard, A, Let banks fail, says Nobel economist Joseph Stiglitz, The Telegraph (Feb. 2, 2009). 

5 Numerous scholars (Pistor, Coffee, Gordon, Levitin, Manns, Lastra etc.) argue that bailouts were necessary. See also PRINCIPLES OF INTERNATIONAL FINANCIAL LAW, 41, section 2.114, (Colin Bamford (ed.), Oxford University Press, Oxford, U.K., 2nd ed., 2015); see also Adamczyk, G & Windisch, B, State aid to European banks: returning to viability, Competition State aid brief, Occasional papers, EUR. COMM’N, Iss. 2015-01 (Feb. 2015). 

6 HUDSON, A, THE LAW OF FINANCE (Sweet & Maxwell, London, U.K., 1st ed., 2009), 831, para 32-02 (A theory on ‘known unknowns’ and ‘unknown unknowns:’ those factors which we have not even thought about yet, and the risks which no one has yet been able to anticipate or to quantify. This theory is similar to Richard Posner’s theory on the underlying unpredictability of economics that is based on the occasional irrational behavior of human beings.); see also WOLL, C, THE POWER OF INACTION, BANK BAILOUTS IN COMPARISON (Cornell University Press, Ithaca, NY, 2014). 



9 REINHART & ROGOFF, THIS TIME IS DIFFERENT: EIGHT CENTURIES OF FINANCIAL FOLLY (Princeton University Press, Princeton, NJ, 2009), 158-162, 173 (quoted from 162): “(…) one reason major banking crises are such protracted affairs is that these episodes involve the real estate market’s persistent cycle in a way that “pure stock market crashes”—for instance, Black Monday in Oct. 1987 or the bursting of the information technology (IT) bubble in 2001—do not.” 

10 Levitin, A J, In Defense of Bailouts, 99 Geo. L.J. 435-514 (2011). 

11 Posner, E & Casey, A, A Framework for Bailout Regulation, 91 NOTRE DAME LAW REVIEW 479 (2015). 

12 Pistor, K, A Legal Theory of Finance, 41 J. COMP. ECON. 315-330 (2013). 

13 HUDSON, A, THE LAW OF FINANCE (Sweet & Maxwell, London, U.K., 2009), Sec. One, Part I.3 and Part 3. 

14 Jana Randow, Jeremy Scott Diamond and Hayley Warren, When Will the ECB Pull Its Trillions From the Markets?, BLOOMBERG, (Nov. 30, 2017); Jean-Michel Paul, The Unintended Consequences of Quantitative Easing, Asset inflation doesn’t have to be bad. Flush governments could invest in education and infrastructure, BLOOMBERG, (Aug. 22, 2017); Schulze, E, The Fed launched QE nine years ago – these four charts show its impact, CNBC, Nov. 25, 2017. 

15 Júlia Király, Transformation of the ownership structure of the Hungarian banking sector [in Hungarian: A magyar bankrendszer tulajdonosi struktúrájának átalakulása] (2015), at http://econ.core.hu/file/download/kiraly/160204.pdf. (This article concludes that increased state ownership, decreased private ownership, decreased competition and decreased number of market players in the financial sector do not make the banking system more stable nor more resistant to financial crisis situations.) 

16 Black, J, Managing the Financial Crisis – The Constitutional Dimension, LSE Law, Society and Economy Working Papers, No. 12/2010 (03.06.2010). 

17 Id.; WALTER BAGEHOT, LOMBARD STREET: A DESCRIPTION OF THE MONEY MARKET, 334 (Henry S. King & Co., 3rd ed., London, U.K., 1873). 

18 Gordon J N, & Muller, C, Confronting Financial Crisis: Dodd-Frank’s Dangers and the Case for a Systemic Emergency Insurance Fund, 28 YALE J. REG. 151 (2011). 

19 Manns, J, Building Better Bailouts: The Case for a Long-Term Investment Approach, 63 FLA. L. REV. 1349 (2011). 

20 WALLACH, P A, TO THE EDGE, LEGALITY, LEGITIMACY, AND THE RESPONSES TO THE 2008 FINANCIAL CRISIS, 215-216 (Brookings Institution Press, Washington D.C., 2015). 

21 ECONOMICS OF CONTEMPT, Republican Opposition to the Orderly Liquidation Fund, Economics of Contempt, (Apr. 20, 2010). 

22 Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub L 111-203, H.R. 4173) (7/21/2010), Title II. 

23 Scholars in favor of a crisis fund: Gordon, J N, & Muller, C, Confronting Financial Crisis: Dodd-Frank’s Dangers and the Case for a Systemic Emergency Insurance Fund, 28 YALE J. REG. 151 (2011); Wilmarth, A E, The Dodd-Frank Act: A Flawed and Inadequate Response to the Too-Big-to-Fail Problem, 89 OR. L. REV. 951 (2011); Statement of Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation on the Causes and Current State of the Financial Crisis before the Financial Crisis Inquiry Commission (Jan. 14, 2010); ‘Chapter 14 bankruptcy proposal:’ Originally proposed by the Hoover Institute in 2012 and re-proposed in Jan. 2018 by the U.S. Treasury, this Proposal would make the bridge bank tool and the bail-in tool mandatory in bankruptcy of financial institutions (that would be a new chapter in the U.S. Federal Bankruptcy Code). Solvent subsidiaries would not be affected by the bankruptcy, they could continue their operation (similar to the U.K.’s ’ring-fencing’ solution, see ‘ring-fencing’ in the UK). Now, the FDIC may decide based on its discretion whether it uses the bail-in or not. In my book, I argue that this flexible approach is better than the proposed mandatory bail-in.; See original proposal: Bankruptcy Code Chapter 14, A Proposal, HOOVER INSTITUTE (2012), at https://www.hoover.org/sites/default/files/bankruptcy-code-chapter-14-proposal-20120228.pdf; Barney Jopson, U.S. ‘too big to fail’ regime set for Trump overhaul (Treasury plans ‘Chapter 14’ bankruptcy process to shield taxpayers from bank collapses), FIN. TIMES (Feb. 22, 2018); Kimberly Summe, Misconceptions About Lehman’s Bankruptcy, STAN. L. REV. ONLINE (Nov. 28, 2011) (arguing that it is a misconception that the Bankruptcy Code is suboptimal for systemically important bankruptcies). 

24 FDIC, Geithner Clash on U.S. Financial Failure Fund, REUTERS, (Oct. 29, 2009). 

25 WALLACH, P A, TO THE EDGE, LEGALITY, LEGITIMACY, AND THE RESPONSES TO THE 2008 FINANCIAL CRISIS, 216 (Brookings Institution Press, Washington D.C., 2015). 

26 Dodd-Frank Wall Street Reform and Consumer Protection Act (Pub L 111-203, H.R. 4173) (7/21/2010). 

27 WALLACH, P A, TO THE EDGE, LEGALITY, LEGITIMACY, AND THE RESPONSES TO THE 2008 FINANCIAL CRISIS, 216 (Brookings Institution Press, Washington, D.C., 2015). 

28 Directive 2014/59/EU of the European Parliament and of the Council of 15 May 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms and amending Council Directive 82/891/EEC, and Directives 2001/24/EC, 2002/47/EC, 2004/25/EC, 2005/56/EC, 2007/36/EC, 2011/35/EU, 2012/30/EU and 2013/36/EU, and Regulations (EU) No 1093/2010 and (EU) No 648/2012, of the European Parliament and of the Council. 


30 Regulation (EU) No 806/2014 of the European Parliament and of the Council of 15 July 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund and amending Regulation (EU) No 1093/2010, OFFICIAL J. OF THE EUR. UNION (July 15, 2014) (‘SRM Regulation’). 

31 ECB, Decision of the ECB of 20 February 2014 on the prohibition of monetary financing and the remuneration of government deposits by national central banks (ECB/2014/8) (OJ L 159, 28.5.2014, p. 54); ECB, Decision (EU) 2015/1574 of the ECB of 4 September 2015 amending Decision ECB/2014/8 on the prohibition of monetary financing and the remuneration of government deposits by national central banks (ECB/2015/29) (OJ L 245, 22.9.2015, p. 12); SYSTEMIC RISK, INSTITUTIONAL DESIGN, AND THE REGULATION OF FINANCIAL MARKETS (Oxford University Press, Oxford, U.K., 2017) (Ch. by Rosa M. Lastra: Emergency Liquidity Assistance and Systemic Risk). 

32 Manns, J, Building Better Bailouts: The Case for a Long-Term Investment Approach, 63 FLA. L. REV. 1349 (2011); Jeffrey Manns, Transforming Bailouts Into Investments: A Proposal for the Creation of the Federal Government Investment Corporation, in FINANCIAL CRISIS CONTAINMENT AND GOVERNMENT GUARANTEES, 189-204. (John Raymond LaBrosse, Rodrigo Olivares-Caminal, and Dalvinder Singh. (eds.), Edward Elgar Publishing, 2013); Judge, K, Guarantor of Last Resort, TEXAS LAW REVIEW, Vol. 97 Iss. 4 (March 2019); Posner, E, What Legal Authority Does the Fed Need During a Financial Crisis?, 101 MINNESOTA LAW REVIEW 1529 (2017). 

33 Quantitative easing (‘QE’) is a form of monetary policy applied on both sides of the Atlantic during the recent financial crisis. QE means asset purchases financed by the creation of central bank reserves. Through QE the central bank creates new money electronically to buy financial assets, like government bonds. This process aims to directly increase private sector spending and return to inflation target. See definition by the Bank of England at http://www.bankofengland.co.uk/monetarypolicy/Pages/qe/default.aspxSee also Randow, J, Diamond, J S & Warren, H, When Will the ECB Pull Its Trillions From the Markets?, BLOOMBERG (Nov. 30, 2017); Paul, J-M, The Unintended Consequences of Quantitative Easing, Asset inflation doesn’t have to be bad. Flush governments could invest in education and infrastructure, BLOOMBERG (Aug. 22, 2017); Schulze, E, The Fed launched QE nine years ago – these four charts show its impact, CNBC (Nov. 25, 2017). 

34 Ignacio Tirado Martí, Banking Crisis and the Japanese Legal Framework, Institute of Monetary and Economic Studies Discussion Papers, BANK OF JAPAN, (2016); Justin McCurry, Japanese banks could receive $110bn bail-out, (Dec. 30, 2008), THE GUARDIAN; Mariassunta Giannetti & Andrei Simonov, The real effects of bank bailouts: Evidence from Japan, VOX.EU (Sept. 23, 2009). 

35 BAGEHOT, W, LOMBARD STREET: A DESCRIPTION OF THE MONEY MARKET, 334 (Henry S. King & Co, 3rd ed., London, U.K., 1873), 25 (quoting Lord Overstone), 56, 107, 124, 159 and 197-198; see also Praet, P, The ECB and its role as lender of last resort during the crisis, Speech, Committee on Capital Markets Regulation conference, The lender of last resort – an international perspective, Washington, D.C. (Feb. 10, 2016) (“these overarching principles have influenced central banks ever since.” Peret Praet mentions that central banks’ lender-of-last-resort role “was first identified more than two centuries ago by Henry Thornton (1802) and elaborated on 70 years later by Walter Bagehot (1873)”; HENRY THORNTON, AN INQUIRY INTO THE NATURE AND EFFECTS OF THE PAPER CREDIT OF GREAT BRITAIN, M.P. London, 1802); Brian F. Madigan, Bagehot’s Dictum in Practice: Formulating and Implementing Policies to Combat the Financial Crisis, Federal Reserve Bank of Kansas City’s Annual Economic Symposium, Jackson Hole, Wyoming, (Aug. 21, 2009); See generally BEN S. BERNANKE, THE COURAGE TO ACT: A MEMOIR OF A CRISIS AND ITS AFTERMATH, (W.W. Norton & Company, 1st ed., New York, NY, 2015); GEITHNER, T F, STRESS TEST: REFLECTIONS ON FINANCIAL CRISES (Broadway Books, New York, NY, 2015); WOLL, C, THE POWER OF INACTION, BANK BAILOUTS IN COMPARISON (Cornell University Press, Ithaca, NY, 2014). 

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