Signs of recognition of a problem and insolvent bank

Анотація

One of the most critical tasks of a bank is to ensure its viability. However, not all banks demonstrate the ability to function stably under conditions of socio-economic uncertainty, such as the Covid pandemic or wars. Consequently, banks find themselves in crisis situations and/or go bankrupt. In economic literature, there has long been a debate about the identity of the concepts of a «problem bank,» «insolvent bank,» and «bankruptcy.» However, many issues remain contentious to this day. This article aims to shed light on these problematic aspects and explore solutions considering global experience. Unlike other economic activities, banking has its own specificity linked to risks that directly affect the solvency of banks and significantly complicate the formalization of problems, insolvency, and bankruptcy. Attention is drawn to the absence of clear definitions of these concepts in legislative acts. There are only criteria for categorizing a bank into one category or another, which are grouped in the study according to certain criteria. However, the question of the National Bank of Ukraine (NBU) having extended powers regarding the recognition of a bank’s problematic status for other reasons is disputed. The recognition of a bank as problematic is a banking secret, unlike insolvency. In matters of recognizing a bank as problematic and regulating insolvency, administrative powers are divided between the NBU and the Deposit Guarantee Fund (FGVFO). The study presents the algorithm of actions of FGVFO when receiving a decision from the NBU to classify a bank as problematic. The presence of financial asymmetry is identified as a cause of insolvency, where insolvency is interpreted as the inability to pay debts. However, it is noted that a more critical issue should be the disruption of the bank’s operations or a deterioration in the financial condition of the banking institution, which prevents the bank from functioning as a financial intermediary. Such a situation already poses a corresponding societal threat. The procedure for recognizing insolvency is subject to certain subjectivity. In case insolvency cannot be resolved, FGVFO takes the authority to withdraw the bank from the market. Emphasis is placed on the duality of recognizing a bank as insolvent: as a measure of influence and the actual recognition of the bank’s bankruptcy situation, with the application of liquidation procedures. World experience in addressing these issues is also discussed.

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