BCCI was closed on 5 July 1991 in coordinated action involving the Bank of England, the Luxembourg Monetary Institute and other European members of the College of Supervisors.
The decision was not taken on the day itself. By the beginning of July 1991, the Bank of England, together with other European regulators, was already moving in secret towards coordinated action against BCCI. The UAE Central Bank, although itself a member of the College of Supervisors, was deliberately excluded from the discussions leading to closure.
By then, the restructuring programme had been developed in detail: final plans for the proposed new banks had been submitted to the relevant regulators during May and June 1991, and the latest composite restructuring plan was sent to the Bank of England and the Luxembourg Monetary Institute on 3 July 1991, at their request.
On 4 July 1991, unaware that the move towards closure had already been decided and without having been informed of it, the Abu Dhabi shareholders transferred a further US$650 million in financial support. BCCI was closed the following day, 5 July 1991, when Abu Dhabi immediately recalled the funds.
What triggered the closure?
The immediate trigger was reported to be the draft Section 41 report by Price Waterhouse commissioned by the Bank of England and delivered to the Bank of England in June 1991.
Until early July 1991, Abu Dhabi had not been informed that the proposed restructuring was no longer considered viable. From Abu Dhabi’s position, it was therefore reasonable to believe that the restructuring remained close to finalisation - a belief consistent with its decision to remit a further US$650 million on 4 July 1991 to strengthen BCCI’s capital position. Yet, while those discussions were continuing, the Bank of England had separately commissioned a confidential Section 41 investigation, against a background of increasingly serious concerns being expressed by US authorities.
Within days of the draft section 41 report being delivered, the Bank of England coordinated the move in secret towards closure, supported by the Luxembourg authorities, that culminated in the abrupt closure announcement on 5 July 1991. This leaves important unresolved questions: why did the Bank of England continue restructuring discussions with Abu Dhabi and permit a further US$650 million to be remitted on 4 July, only one day before closure worldwide; why was the proposal to separate BCCI’s viable operations from its problem assets not a practical solution for addressing the findings of the Section 41 report, and what materially new findings in the Section 41 report justified such an abrupt reversal of course?
The Bingham Report (HC 198 (1992), Chapter 2, especially paras 2.386 - 2.389 and 2.423 - 2.426, pp. 127, 135) records "The Bank's position (meaning the Bank of England) was an uncomfortable one. It wanted above all to preserve its good relations with the Fed. It was also reluctant to see the reconstruction of BCCI, which it believed to be in train and to be beneficial to depositors, jeopardised by highly publicised and damaging proceedings in the US. Over the remaining months of BCCI's active existence the role of the US authorities was to be an increasingly significant one."
The announcement of BCCI;' closure was not uniform across the world. In some countries, BCCI branchs, subsidiaries and affiliated institutions were allowed by central banks to continue operating, subsequently traded under different names and ownership.
The closure also had consequences beyond depositors and shareholders. A subsequent study prepared for the United Nations Centre on Transnational Corporations examined the economic effects of abruptly disrupting BCCI’s international trade-finance network, particularly in developing countries where the Bank had played a significant role.
A central historical question is also whether the Bank of England was influenced in any way by contacts with the US authorities.
That question is examined in greater detail in the Perspective section of this website.