Managing bank failures in Tanzania: law and practice.

This study attempts to examine the law and practice relating to management of bank ith special reference to Tanzania. The study scrutinizes the law applicable handling of bank failures and raises the following hypothesis: "The current legal framework appears to be inadequate for the management of failed banks in Tanzania.'' In recent years given heightened interest in the subject of bank failures, a number of jurisdictions have addressed different approaches to deal with banks that become insolvent. These approaches include the appointment of one or more officials with wide ranging intervention powers regarding the bank's management. Various resolution options may be employed by the banking supervisory authority to troubled banks. These include, inter alia, merger or acquisition, purchase and assumption, bridge bank and good bank/bad bank techniques. The study has noted that in dealing with problem banks and their subsequent failure, should restructuring be infeasible, Regulators should observe certain principles. Of essence is speed, costs, consistency and avoiding moral hazard. Experiences from both developed economies as well as developing economies reveal that there is a need for Tanzania to review its legal and regulatory framework with a view to improving the handling of bank failures as they occur. The study draws several recommendations which impose legal requirements on the Regulator to take inter alia mandatory specified interventions in a distressed bank and act promptly when its capital is still positive.