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The insufficiency of traditional safety nets: what bank resolution fund for Europe?

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  • Maria J. Nieto
  • Gillian G. Garcia
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    Abstract

    Purpose – The purpose of this paper is to analyze the rationale for Bank Recovery and Resolution Funds (BRRFs) in the context of the present European Union's (EU) decentralized safety net. Design/methodology/approach – The paper makes some reflections on the governance aspects of BRRFs that would require minimum harmonization in the EU, emphasizing that BRRFs are only one institutional component of financial institutions' effective and credible resolution regime. This paper focuses on depository institutions, but the rationale of BRRFs could be extended to other credit institutions. Findings – BRRFs contribute to shifting the government's trade-off between bailing out and restructuring in favour of restructuring, to the extent that there is also an effective bank resolution legal framework. In turn, banks' contributions to BRRFs aim at discouraging their excess systemic risk creation, particularly through financial system leverage. Originality/value – The paper provides input in the current regulatory debate to develop new measures for the reform of the regulatory framework of financial services in the EU.

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    Bibliographic Info

    Article provided by Emerald Group Publishing in its journal Journal of Financial Regulation and Compliance.

    Volume (Year): 20 (2012)
    Issue (Month): 2 (May)
    Pages: 116-146

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    Handle: RePEc:eme:jfrcpp:v:20:y:2012:i:2:p:116-146

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    Web page: http://www.emeraldinsight.com

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    Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
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    Web: http://www.emeraldinsight.com/jfrc.htm

    Related research

    Keywords: Bank failures; Banks; European Union; Financial institutions; Governance; Optimal resolution; Regulation;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Bank for International Settlements, 2009. "An assessment of financial sector rescue programmes," BIS Papers, Bank for International Settlements, number 48, May.
    2. Perotti, Enrico C & Ratnovski, Lev & Vlahu, Razvan, 2011. "Capital Regulation and Tail Risk," CEPR Discussion Papers 8526, C.E.P.R. Discussion Papers.
    3. Gillian G.H. Garcia & Rosa M. Lastra & María J. Nieto, 2009. "Bankruptcy and reorganization procedures for cross-border banks in the EU: Towards an integrated approach to the reform of the EU safety net," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 17(3), pages 240-276, July.
    4. Stolz, Stéphanie Marie & Wedow, Michael, 2010. "Extraordinary measures in extraordinary times: Public measures in support of the financial sector in the EU and the United States," Discussion Paper Series 1: Economic Studies 2010,13, Deutsche Bundesbank, Research Centre.
    5. International Monetary Fund, 2008. "Cross-Border Coordination of Prudential Supervision and Deposit Guarantees," IMF Working Papers 08/283, International Monetary Fund.
    6. Doluca, Hasan & Klüh, Ulrich & Wagner, Marco & Weder di Mauro, Beatrice, 2010. "Reducing systemic relevance: A proposal," Working Papers 04/2010, German Council of Economic Experts / Sachverständigenrat zur Begutachtung der gesamtwirtschaftlichen Entwicklung.
    7. Robert A. Eisenbeis & George G. Kaufman, 2007. "Cross-border banking: challenges for deposit insurance and financial stability in the European Union," Working Paper 2006-15, Federal Reserve Bank of Atlanta.
    8. Rebecca McCaughrin & Simon Gray & Alexandre Chailloux, 2008. "Central Bank Collateral Frameworks," IMF Working Papers 08/222, International Monetary Fund.
    9. Adam Pawlikowski, 2005. "The Polish deposit insurance scheme compared to arrangements adopted in other EU countries," National Bank of Poland Working Papers 34, National Bank of Poland, Economic Institute.
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