A Coasean Approach to Bank Resolution Policy in the Eurozone
AbstractThe Eurozone needs a bank resolution regime that can work across seventeen independent nations of diverse sizes with varying levels of financial development, limited fiscal co-responsibility, and with systemic instability induced by quick and low-cost deposit transfers across borders. We advocate a Coasean approach to bank resolution policy in the Eurozone, which emphasises clear and consistent contracts and makes explicit the public ownership of the externality costs of bank distress. A variety of resolution mechanisms are compared including bank debt holder bail-in, prompt corrective action, and contingent convertible bonds. We argue that the “dilute-in” of bank debt holders via contingent convertibility provides a clearer and simpler Coasean bargain for the Eurozone than the more conventional alternatives of debt holder bail-in or prompt corrective action.
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Bibliographic InfoPaper provided by Department of Economics, Finance and Accounting, National University of Ireland - Maynooth in its series Economics, Finance and Accounting Department Working Paper Series with number n233-12.pdf.
Length: 16 pages
Date of creation: 2012
Date of revision:
Other versions of this item:
- Gregory Connor & Brian O’Kelly, 2012. "A Coasean Approach to Bank Resolution Policy in the Eurozone," FMG Special Papers sp214, Financial Markets Group.
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