Definition
In this report, official administration of banks refers to those forms of insolvency proceedings in which an official authority (e. g., a court-appointed administrator, a banking authority, an administrator appointed by a banking authority) assumes direct managerial control of an insolvent bank, with a view to (a) protecting its assets, (b) assessing its true financial condition, and (c) then either conducting all the necessary restructuring operations or placing the bank in liquidation. Official administration continues until the institution has been restored to soundness or placed in liquidation.
An effective framework for official administration needs to be built on a number of basic premises, including the following:
• Speed: The threat of bank insolvency needs a quick and decisive response.
• Autonomy: The official administrator must have sufficient autonomy in taking action.
• Proportionality: The powers of the official administrator need to be sufficient to protect creditors’, depositors’, and systemic interest while avoiding unnecessary interference with the property rights of owners.
• Flexibility: The option to close the bank and proceed with liquidation must never be excluded.
• Accountability: The broad powers of official administrator need to be balanced by transparency and accountability.
• Professionalism: The official administration should be conducted by experienced, fit, and proper official administrators, with specific experience in managing a bank.
