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Recovery Determinants of Distressed Banks

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Author Info

  • Michael Koetter
  • Tigran Poghosyan
  • Thomas Kick

Abstract

Based on detailed regulatory intervention data among German banks during 1994-2008, we test if supervisory measures affect the likelihood and the timing of bank recovery. Severe regulatory measures increase both the likelihood of recovery and its duration while weak measures are insignificant. With the benefit of hindsight, we exclude banks that eventually exit the market due to restructuring mergers. Our results remain intact, thus providing no evidence of "bad" bank selection for intervention purposes on the side of regulators. More transparent publication requirements of public incorporation that indicate more exposure to market discipline are barely or not at all significant. Increasing earnings and cleaning credit portfolios are consistently of importance to increase recovery likelihood, whereas earnings growth accelerates the timing of recovery. Macroeconomic conditions also matter for bank recovery. Hence, concerted micro- and macro-prudential policies are key to facilitate distressed bank recovery.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/27.

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Length: 29
Date of creation: 01 Jan 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/27

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Keywords: Bank resolution; Bank soundness; Bank supervision; Banking crisis; Banks; Credit risk; Economic models; Risk management; banking; deposit insurance; financial services; financial markets; reserve ratio; financial economics; financial institutions; banking sector; joint stock; financial system; banking supervision; stock company; bank distress; bank managers; moral hazard; retained earnings; joint stock company; financial stability; banking regulation; earnings growth; bank failure; deposit insurance scheme; banking firm; bank for international settlements; failure resolution; banking industry; central banking; recapitalization; savings bank; return on equity; bond rates; stock companies; banking business; joint stock companies; bank insurance; distressed bank; financial systems; deposit guarantee; bank recapitalization; financial intermediation; government bond; federal deposit insurance; bank restructuring; banking markets; banking crises; bank capital; bond; banking market; government bonds; crowding out; bank performance; universal banking; bank stability; bank failures; banking crisis management; interbank market; equity capital; financial market; bonds; banking industries; cooperative banking; money markets; banking system; equity markets; banking associations; bankruptcies; bank regulations;

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References

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Citations

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Cited by:
  1. Düwel, Cornelia & Frey, Rainer & Lipponer, Alexander, 2011. "Cross-border bank lending, risk aversion and the financial crisis," Discussion Paper Series 1: Economic Studies 2011,29, Deutsche Bundesbank, Research Centre.
  2. G. de Cadenas-Santiago & L. de Mesa & A. Sanchís, 2010. "Systemic Risk, an Empirical Approach," Economic Reports 17-2010, FEDEA.
  3. von Furstenberg, George M., 2011. "Contingent capital to strengthen the private safety net for financial institutions: Cocos to the rescue?," Discussion Paper Series 2: Banking and Financial Studies 2011,01, Deutsche Bundesbank, Research Centre.

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