VII Special Moratorium on Debt Service by Banks Under the Banking Law
  • 1 0000000404811396 Monetary Fund


Usually, regulatory corrective action cannot be kept secret. When it becomes public knowledge, it may trigger a run on the bank in distress. To reduce the risk that liquidity problems of a bank would balloon into a run on the bank, which could set off runs on other banks, and to buy the bank and the regulators some time to find a solution for the bank’s problems, the banking law of some countries authorizes that a temporary and special payment moratorium for some or all of the bank’s debt be imposed on creditors of a bank in distress.196 These moratoria are special in that they differ from the more common and general moratoria that usually accompany a general insolvency proceeding or a bank receivership.