Protecting the depositors: a case for a sui generis bank insolvency regime

Abstract

The potential collapse of Spire Bank in Kenya gives rise to questions of bank insolvency and the potential of reviving failed banks. Over the years research has shown that several banks in Kenya have failed due to various reasons such as mismanagement and excessive insider lending. However, despite analysing the reason why banks failed, most research failed to consider the question for bank insolvency and its efficiency to revive failed banks. The current insolvency regime for banks seems to lead to the complete collapse of banks rather than revival, begging the question on whether current bank insolvency law is effective. Furthermore, in the process of winding up a failed bank, insolvency law tends to favour creditor protection over depositon protection.