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This chapter turns to the Chinese banking environment and how China has been responding to the huge loan losses and the growing scale of bank deposits. These scores suggest a worsening of moral hazard and the possibility that the preconditions for deposit insurance to improve bank soundness are not present. Small depositors in China, however, have not been left unprotected, even despite the fact that a formal system of depositor protection has not yet been established. The chapter then looks at China’s more recent experience and how the government’s role in Chinese banking system has been evolving. Furthermore, the chapter discusses how despite a formal system, China’s depositors remain protected in other ways. Finally, new deposit insurance schemes are suggested that have previously garnered positive results and even guided past rescues.

During the crisis depositors changed their beliefs from run on the bank to not run on the bank. The timing of events during a crisis was very consistent. At the start the clearing house took actions to protect the banking system. During the crisis, gold was imported and clearing house surplus reserves increased. These developments changed depositors' beliefs about the solvency of the banking system.

Northern Rock, a small building society converted to a bank in 1997, lent aggressively, repackaging the loans as securities, selling them to investors, using the proceeds to make more loans. In 2007 it was unable to re-finance its lending commitments and meet withdrawals. When depositors knew the bank was in financial difficulty, they panicked. Since 1997, no institution had prime responsibility to intervene so as to prevent the problems at one bank destabilizing the entire banking system. The government was forced to intervene to guarantee the savings of all depositors. These problems were symptoms of the general risk-taking within the British banking system, further exposed in 2008 among the building societies that had converted into banks and then the two Scottish banks. The Bank of England intervened, helped by the experience gained in 2007. Overall responsibility for the British banking system was then restored to the Bank of England.

This chapter assesses the link between insolvency and liquidation, focusing on the orderly protection of depositors. There are differences in approach to safeguard the public interest at the regional and domestic levels. The misalignment of domestic insolvency-liquidation law and depositor protection mandates is likely to lead to wider techniques being needed to effectuate an orderly insolvency-liquidation proceeding and payout to banks’ depositors. This means the competent authority, the resolution authority, and the management of the bank, or administrator-liquidator will need to coordinate their responsibilities through a court-based process during the timeframe of failing or likely to fail to achieve an orderly payout to depositors. The potential coordination risks would need to be factored into the process of a failing or likely-to-fail timeframe.

The chapter seeks to delineate the interaction of corporate insolvency law and resolution proceedings. In Europe, the legal framework provided by the Bank Recovery and Resolution Directive and even the Single Resolution Mechanisms remain incomplete, with national corporate insolvency law filling the gaps. This is perhaps most relevant for the ranking of creditors under national law. The chapter provides an overview of the corporate insolvency procedures that are available in the jurisdictions under consideration. These may function as either a self-standing resolution mechanism or as supplementary devices within the framework of resolution. Given the relevance for all insolvency procedures under consideration as well as for resolution, not least through the ‘no-creditor-worse-off’ principle, the chapter discusses the ranking of different classes of creditors as determined by the Directive and national law, as well as the privileged treatment of certain financial creditors.