Document Type
Article
Publication Date
1999
Abstract
To what extent should bank holding companies bear the costs of bank failure? Current banking law provides a number of ways to impose liability on bank holding companies for bank failure. Those devices, however, have developed haphazardly and sometimes rest on inconsistent theoretical foundations. This Article critiques the regulatory justifications that have been offered for holding company liability and offers an alternative justification for imposing liability on holding companies based on the idea that directors of bank subsidiaries suffer from an especially difficult form of horizontal conflict--the situation where the board of directors owes several different duties and chooses to serve shareholder interests to the exclusion of all others, including their duty to the bank as an entity.
It resolves the horizontal conflict through the application of agency-like principles. The quasi-agency approach would treat subsidiary directors as quasi-agents of the parent company and impose responsibility directly on the holding company for any duties that bank managers owe to parties other than the bank holding company (including the duty to act in the best interest of the bank as an entity). Under the quasi-agency approach, the holding company should be liable only to the extent that the directors of its properly capitalized bank failed to discharge duties to nonparent constituents (including any duty to the bank itself as a separate legal entity). The extent of the liability so incurred should be limited to the harm caused by the failure to discharge the duty.
Recommended Citation
U. Ill. L. Rev. 949 (1999)
