Recovery determinants of distressed banks: Regulators, market discipline, or the environment?
AbstractBased 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. Results seem not to be driven by regulators directing measures to particularly bad banks. That is, our results remain intact when we exclude banks that eventually exit the market due to restructuring mergers or moratoria. 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. --
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 2: Banking and Financial Studies with number 2010,02.
Date of creation: 2010
Date of revision:
Bank distress; capital support; regulation; recovery;
Other versions of this item:
- Michael Koetter & Tigran Poghosyan & Thomas Kick, 2010. "Recovery Determinants of Distressed Banks: Regulators, Market Discipline, or the Environment?," IMF Working Papers 10/27, International Monetary Fund.
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-29 (All new papers)
- NEP-BAN-2010-05-29 (Banking)
- NEP-CFN-2010-05-29 (Corporate Finance)
- NEP-EFF-2010-05-29 (Efficiency & Productivity)
- NEP-REG-2010-05-29 (Regulation)
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.:
- Lelyveld, Iman van & Liedorp, Franka, 2004.
"Interbank Contagion in the Dutch Banking Sector,"
651, University Library of Munich, Germany, revised 11 Jul 2005.
- Acharya, Viral V. & Bharath, Sreedhar T. & Srinivasan, Anand, 2007. "Does industry-wide distress affect defaulted firms? Evidence from creditor recoveries," Journal of Financial Economics, Elsevier, vol. 85(3), pages 787-821, September.
- Bongini, Paola & Claessens, Stijn & Ferri, Giovanni, 2000.
"The political economy of distress in East Asian financial institutions,"
Policy Research Working Paper Series
2265, The World Bank.
- Paola Bongini & Stijn Claessens & Giovanni Ferri, 2001. "The Political Economy of Distress in East Asian Financial Institutions," Journal of Financial Services Research, Springer, vol. 19(1), pages 5-25, February.
- María J. Nieto & Larry D. Wall, 2007.
"Preconditions for a successful implementation of supervisors' Prompt Corrective Action: Is there a case for a banking standard in the EU?,"
Banco de Espaï¿½a Working Papers
0702, Banco de Espa�a.
- Larry Wall & Maria Nieto, 2006. "Precondition for a Successful Implementation of Supervisors' Primpt Corrective Action: Is There a Case for a Banking Standard in the EU?," FMG Special Papers sp165, Financial Markets Group.
- Ross Levine, 2002.
"Bank-Based or Market-Based Financial Systems: Which is Better?,"
NBER Working Papers
9138, National Bureau of Economic Research, Inc.
- Levine, Ross, 2002. "Bank-Based or Market-Based Financial Systems: Which Is Better?," Journal of Financial Intermediation, Elsevier, vol. 11(4), pages 398-428, October.
- Ross Levine, 2002. "Bank-Based or Market-Based Financial Systems: Which is Better?," William Davidson Institute Working Papers Series 442, William Davidson Institute at the University of Michigan.
- Joe Peek & Eric S. Rosengren & Geoffrey M. B. Tootell, 1999.
"Is Bank Supervision Central To Central Banking?,"
The Quarterly Journal of Economics,
MIT Press, vol. 114(2), pages 629-653, May.
- Kaufman, George G., 1995. "FDICIA and bank capital," Journal of Banking & Finance, Elsevier, vol. 19(3-4), pages 721-722, June.
- George J. Benston, 1994. "Universal Banking," Journal of Economic Perspectives, American Economic Association, vol. 8(3), pages 121-143, Summer.
- Bandopadhyaya, Arindam, 1994. "An Estimation of the Hazard Rate of Firms under Chapter 11 Protection," The Review of Economics and Statistics, MIT Press, vol. 76(2), pages 346-50, May.
- Arturo Bris & Ivo Welch & Ning Zhu, 2006. "The Costs of Bankruptcy: Chapter 7 Liquidation versus Chapter 11 Reorganization," Journal of Finance, American Finance Association, vol. 61(3), pages 1253-1303, 06.
- Peter Schmidt & Ann Dryden Witte, 1989.
"Predicting Criminal Recidivism Using "Split Population" Survival Time Models,"
NBER Working Papers
2445, National Bureau of Economic Research, Inc.
- Schmidt, Peter & Witte, Ann Dryden, 1989. "Predicting criminal recidivism using 'split population' survival time models," Journal of Econometrics, Elsevier, vol. 40(1), pages 141-159, January.
- Dahl, Drew & Spivey, Michael F., 1995. "Prompt corrective action and bank efforts to recover from undercapitalization," Journal of Banking & Finance, Elsevier, vol. 19(2), pages 225-243, May.
- Allen N. Berger & Sally M. Davies & Mark J. Flannery, 2000.
"Comparing market and supervisory assessments of bank performance: who knows what when?,"
Federal Reserve Bank of Cleveland, pages 641-670.
- Berger, Allen N & Davies, Sally M & Flannery, Mark J, 2000. "Comparing Market and Supervisory Assessments of Bank Performance: Who Knows What When?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 32(3), pages 641-67, August.
- Allen N. Berger & Sally M. Davies & Mark J. Flannery, 1998. "Comparing market and supervisory assessments of bank performance: who knows what when?," Finance and Economics Discussion Series 1998-32, Board of Governors of the Federal Reserve System (U.S.).
- Upper, Christian & Worms, Andreas, 2004.
"Estimating bilateral exposures in the German interbank market: Is there a danger of contagion?,"
European Economic Review,
Elsevier, vol. 48(4), pages 827-849, August.
- Upper, Christian & Worms, Andreas, 2002. "Estimating Bilateral Exposures in the German Interbank Market: Is there a Danger of Contagion?," Discussion Paper Series 1: Economic Studies 2002,09, Deutsche Bundesbank, Research Centre.
- Takeo Hoshi & Anil K Kashyap, 2008.
"Will the U.S. Bank Recapitalization Succeed? Eight Lessons from Japan,"
NBER Working Papers
14401, National Bureau of Economic Research, Inc.
- Hoshi, Takeo & Kashyap, Anil K, 2010. "Will the U.S. bank recapitalization succeed? Eight lessons from Japan," Journal of Financial Economics, Elsevier, vol. 97(3), pages 398-417, September.
- Flannery, Mark J & Houston, Joel F, 1999. "The Value of a Government Monitor for U.S. Banking Firms," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(1), pages 14-34, February.
- Atul Gupta & Lalatendu Misra, 1999. "Failure and Failure Resolution in the US Thrift and Banking Industries," Financial Management, Financial Management Association, vol. 28(4), Winter.
- DeYoung, Robert, 2003. "The failure of new entrants in commercial banking markets: a split-population duration analysis," Review of Financial Economics, Elsevier, vol. 12(1), pages 7-33.
- Kalay, Avner & Singhal, Rajeev & Tashjian, Elizabeth, 2007. "Is Chapter 11 costly?," Journal of Financial Economics, Elsevier, vol. 84(3), pages 772-796, June.
- Koetter, Michael & Kick, Thomas, 2007.
"Slippery slopes of stress: ordered failure events in German banking,"
Discussion Paper Series 2: Banking and Financial Studies
2007,03, Deutsche Bundesbank, Research Centre.
- Kick, Thomas & Koetter, Michael, 2007. "Slippery slopes of stress: Ordered failure events in German banking," Journal of Financial Stability, Elsevier, vol. 3(2), pages 132-148, July.
- Ramon P. DeGennaro & Larry H.P. Lang & James B. Thomson, 1993. "Troubled Savings and Loan Institutions: Turnaround Strategies Under Insolvency," Financial Management, Financial Management Association, vol. 22(3), Fall.
- Arturo Estrella & Sangkyun Park & Stavros Peristiani, 2000. "Capital ratios as predictors of bank failure," Economic Policy Review, Federal Reserve Bank of New York, issue Jul, pages 33-52.
- Gan, Jie, 2004. "Banking market structure and financial stability: Evidence from the Texas real estate crisis in the 1980s," Journal of Financial Economics, Elsevier, vol. 73(3), pages 567-601, September.
- Guo, Lin, 1999. "When and why did FSLIC resolve insolvent thrifts?," Journal of Banking & Finance, Elsevier, vol. 23(6), pages 955-990, June.
- Dahiya, Sandeep & John, Kose & Puri, Manju & Ramirez, Gabriel, 2003. "Debtor-in-possession financing and bankruptcy resolution: Empirical evidence," Journal of Financial Economics, Elsevier, vol. 69(1), pages 259-280, July.
- 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.
- 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.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.