On 5 July 1991, banking regulators in a number of jurisdictions took coordinated action to suspend and close the operations of the Bank of Credit and Commerce International (BCCI). The action, led principally by the Bank of England and the Luxembourg authorities, brought the operations of one of the world’s most geographically extensive banking groups to an abrupt halt.
The immediate regulatory action followed consideration by senior Bank of England officials of a draft report prepared by Price Waterhouse under section 41 of the Banking Act 1987. The report contained serious allegations concerning false accounting, concealed losses and liabilities, irregular lending and other deficiencies within the BCCI Group. The Bank of England subsequently maintained that closure was necessary to protect existing and potential depositors.
The decision represented a sharp change from the position only days earlier. Until late June 1991, discussions had continued concerning the restructuring of BCCI into separately capitalised and regulated banks, supported by the Abu Dhabi majority shareholders. Following consideration of the draft Section 41 report, however, senior Bank of England officials concluded on 28 June that the proposed restructuring and establishment of a new UK bank could no longer proceed.
By 1–2 July 1991, the Bank of England was moving towards coordinated regulatory action. The Bingham Report records that by the evening of 2 July the Bank considered it preferable to act before entering into further discussions with the majority shareholders. Arrangements were therefore made with other European regulators for simultaneous action against BCCI.
Significantly, this course was developed without prior consultation with the Abu Dhabi majority shareholders or the UAE Central Bank, even though the UAE Central Bank was a member of BCCI’s College of Regulators and would have been responsible for supervising one of the principal successor banks proposed under the restructuring programme. The Abu Dhabi representatives continued to believe that discussions concerning restructuring and additional financial support were still in progress.
Indeed, on 4 July 1991, the Abu Dhabi Government transferred a further US$650 million in support of BCCI. The transfer was made after the Bank of England had already moved decisively towards closure. The chronology therefore raises the question of whether the majority shareholders were adequately informed that the regulators’ position had fundamentally changed before further financial support was provided.
On the morning of 5 July, Ghanim Faris Al-Mazrui, representing the Abu Dhabi majority shareholders, attended a meeting in Luxembourg. According to the later account recorded by Lord Justice Bingham, he had expected discussions concerning the outstanding restructuring and financial-support arrangements. Instead, he was informed that the regulators had decided to act and that BCCI would be placed into provisional liquidation. His request for time to consult Abu Dhabi was not accepted.
The coordinated action came as a profound shock to BCCI’s employees, customers, depositors and many of its shareholders around the world. Branches that had been operating normally were suddenly closed, accounts were frozen and thousands of employees found themselves unable to continue working. The consequences extended across numerous countries and communities that had relied upon BCCI for banking, trade finance and remittance services.
The closure subsequently became the subject of extensive public, parliamentary and regulatory debate. One continuing question concerns whether immediate closure was the only proportionate regulatory response, particularly given the financial support available from Abu Dhabi, the restructuring already under development and the possibility of separating viable banking operations from impaired assets.
It has also contributed to a wider debate over consistency and possible double standards in international banking supervision. In later banking cases, institutions facing serious regulatory, compliance or financial failures have often been permitted to recapitalise, replace management, restructure operations, pay substantial penalties or continue under enhanced supervision rather than being closed outright. Whether those comparisons are directly equivalent remains open to debate, but they provide an important basis for examining the consistency, proportionality and fairness of the regulatory response to BCCI.
The closure of 5 July 1991 therefore marks the central turning point in BCCI’s history: the point at which an extensive restructuring and recapitalisation process was abandoned in favour of coordinated regulatory closure and, ultimately, liquidation.
For a fuller examination of the decision-making process, the Section 41 investigation, Abu Dhabi financial support, the role of the College of Regulators and comparisons with the treatment of other international banks, see BCCI Closure, Price Waterhouse Reports, Regulatory Response to BCCI Restructuring in Bingham Report , and Double Standards in Banking Supervision.
