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Bank Insolvencies, Regulatory Forbearance and Ambiguity

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  • Dmitri V. Vinogradov

    ()
    (Universität Heidelberg, Alfred-Weber-Institut für Wirtschaftswissenschaften
    Universität Heidelberg, Alfred-Weber-Institut für Wirtschaftswissenschaften)

Abstract

Banking regulators often practice forbearance and ambiguity in insolvency resolutions. The paper examines the effects of regulatory forbearance and ambiguity in a context of allocational efficiency. Bailouts, liquidations and their stochastic policy mix lead to suboptimal allocations if banks do not internalize insolvency costs. The policy of forbearance may make banks internalizing such costs and improves the efficiency of intermediation.

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File URL: http://www.uni-heidelberg.de/md/awi/forschung/dp431.pdf
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Bibliographic Info

Paper provided by University of Heidelberg, Department of Economics in its series Working Papers with number 0431.

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Length: 26 pages
Date of creation: Sep 2006
Date of revision: Sep 2006
Handle: RePEc:awi:wpaper:0431

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Keywords: Banks; insolvency resolution; forbearance; constructive ambiguity;

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  1. James, Christopher, 1991. " The Losses Realized in Bank Failures," Journal of Finance, American Finance Association, American Finance Association, vol. 46(4), pages 1223-42, September.
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