Bank liquidation is the process of dissolving a bank’s operations when it is unable to meet its financial obligations or is insolvent. This is done to protect depositors, maintain financial stability, and prevent contagion in the banking system.
The rationale behind bank liquidation is to safeguard depositors’ interests, maintain public trust in the financial system, and minimize the economic impact of a failing bank. It may impact society by causing job losses, reduced access to financial services, and potential losses for creditors and shareholders.
Some banks in Hungary are liquidated due to insolvency or regulatory violations, while others may receive penalties or sanctions if they can address the issues and continue to operate. The decision depends on the severity of the problems and the bank’s ability to remedy them.
The Legal Framework
The main laws governing bank liquidation in Hungary are the Credit Institutions Act, the Bankruptcy Act, and the Deposit Guarantee Act. These laws provide the regulatory framework for the liquidation process and the protection of depositors.
The Bank Recovery and Resolution Directive (BRRD) is an EU regulation aiming to provide a framework for the orderly resolution of failing banks. It establishes common rules and tools for EU member states, including Hungary, to ensure minimal impact on taxpayers and the financial system.
Local insolvency regulation in Hungary, such as the Bankruptcy Act, outlines the specific procedures and timelines for bank liquidation, the appointment of a liquidator, and the distribution of assets. It ensures that the process is transparent, fair, and orderly.
Bank Liquidation Procedures in Hungary
Before liquidation, the Hungarian Financial Supervisory Authority (HFSA) may impose measures to address a bank’s issues, such as requiring additional capital, restructuring, or limiting operations. If these measures fail, the HFSA may initiate the liquidation process.
The assets of a distressed bank are valued by an independent valuer, who assesses their market value and potential write-downs. Write-downs may occur due to declining asset values, loan defaults, or other factors affecting the bank’s financial position.
The collection of foreign assets may be challenging due to differing legal frameworks, currency fluctuations, and political risks. These factors can prolong the liquidation process and affect the repayment percentages for creditors. A liquidator is appointed by the HFSA to oversee the liquidation process. The liquidator is responsible for managing the bank’s assets, distributing proceeds to creditors, and ensuring compliance with legal requirements.
Assets are distributed to creditors based on the priority of their claims, as established by the Bankruptcy Act. Secured creditors are paid first, followed by unsecured creditors, and finally, shareholders. Secured creditors have a higher priority in the distribution of assets and are paid before unsecured creditors. Secured creditors have collateral backing their claims, such as mortgages or liens on specific assets, while unsecured creditors do not have such protection. After the secured creditors’ claims are satisfied, unsecured creditors receive a pro-rata share of the remaining assets, depending on the total amount of their claims.
The duration of the liquidation process in Hungary can vary significantly depending on the complexity of the case, the size of the bank, and the nature of its assets. It can take anywhere from several months to a few years. Creditors can expect to receive payouts during the liquidation process once the assets are sold, and the proceeds are distributed according to the priority of claims. However, the exact timing of payouts may be uncertain, as it depends on factors such as asset realization, legal disputes, and the overall progress of the liquidation.