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Title: Administration of recoveries in individual insolvency - case studies of two UK banks
Authors: Pond, Keith
Keywords: Insolvency
Credit
Banking
Voluntary arrangements
Bankruptcy
Issue Date: 2002
Publisher: © Taylor and Francis
Citation: POND, K., 2002. Administration of recoveries in individual insolvency - case studies of two UK banks. European Journal of Finance, 8(2), pp. 206-221
Abstract: Against a background of greater competition, market saturation and falling margins over the past decade UK banks have sought greater efficiencies in credit and risk assessment procedures, especially with personal lending products. In the same way they have attempted to reduce costs associated with the monitoring and collection of bad debts. Failure to monitor debt recoveries adequately, however, can lead to further pressure on profits. This paper uses a case study approach to outline key strategies adopted by two major banks in respect of formal insolvency, the “tip” of a considerable debt recovery “iceberg”. The paper illustrates the reactions and changing administrative practices of banks, as unsecured creditors, and draws on empirical research that has charted the effect of the Insolvency Act 1986 as regards individual debtors. The collection of bad debts presents banks with risks, heightened by adverse selection and moral hazard problems greater than those applicable to credit risk assessment. However, whilst the “downside risk” equates with the debt write-off plus transaction costs the “upside potential” has elements of both tangible and intangible benefit. The paper goes on to review specific centralisation and outsourcing policies against the critical risks in insolvency. It also suggests that the bargaining power of major creditors, including banks, is increased through these activities, to the possible detriment of smaller creditors and of debtors.
Description: This article was published in the joural, European Journal of Finance [© Taylor and Francis]. The definitive version: POND, K., 2002. Administration of Recoveries in Individual Insolvency: Case Studies of Two UK Banks, The European Journal of Finance, 8(2), pp. 206-221, is available at: http://www.journalsonline.tandf.co.uk/openurl.asp?genre=journal&eissn=1466-4364.
URI: https://dspace.lboro.ac.uk/2134/1211
ISSN: 1351-847X
Appears in Collections:Published Articles (Business School)

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