Zero-hour rule
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Regulatory Capital Anatomy™
The JC’s untutored thoughts on how bank capital works.
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Zero-hour rule
/ˈzɪərəʊ/-/aʊə/ /ruːl/ (n.)
A provision in the insolvency law of a jurisdiction whereby transactions and contractual actions conducted by an insolvent institution after midnight on the date the institution is declared insolvent are automatically rendered ineffective by operation of law. The insolvency administrator can set them aside and often has broad discretion to do what seems right in the interests of creditors.
It is the fear of zero-hour rules that prompted ISDA’s crack drafting squad™ to devise the concept of Automatic Early Termination in the ISDA Master Agreement. Whether it works — it being a bit of an obvious end-run around the intent of the legislation — is a different question.