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Cross-default dilemma
The potential for a single default to trigger the termination of derivatives contracts with other entities in that group – so-called cross-default clauses – has got regulators worried. But removing these clauses voluntarily may be resisted by creditors. By Joe Rennison
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Resolution of a failing financial institution is simple enough to explain. Rather than let a bank spectacularly blow up, resolution authorities would step in just before insolvency, save the systematically crucial functions that can be saved and wind down the parts that can’t in an orderly way – potentially helped by recapitalisation measures.
Easy to explain, extraordinarily complex to put into practice. To pick on just one element, there is the risk that a bank entering into resolution would
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