The Commencement of Bank Insolvencies in China: Problems and Prospects

This article is the first study to investigate the commencement of bank insolvencies following the collapse of Baoshang Bank. It appears that the Chinese Enterprise Bankruptcy Law does not adequately resolve bank insolvencies. In practice, the general bankruptcy law functions more as a regulatory tool for ending the existence of insolvent banks procedurally, rather than fulfilling the substantive objectives of insolvency. This article also identifies a two-stage solution for addressing bank insolvencies in China. In the first stage, regulatory authorities adopt administrative measures to prevent banks from collapsing. The second stage involves the distribution of assets among creditors and the compensation of depositors, both under the supervision of the regulatory authorities. According to available statistics, it is very difficult for a troubled bank that already meets the general insolvency standard to enter a formal court-based insolvency procedure. Moreover, whether the rescue process is a necessary precondition for every bank insolvency remains controversial due to the inadequacy of existing laws. Indeed, there are many obstacles to the commencement of insolvency proceedings. This article calls for clearer and more reasonable rules on the commencement of Chinese bank insolvency proceedings in order to promote fairness and efficiency.