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

Author

Listed:
  • Maria J. Nieto
  • Gillian G. Garcia

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.

Suggested Citation

  • Maria J. Nieto & Gillian G. Garcia, 2012. "The insufficiency of traditional safety nets: what bank resolution fund for Europe?," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 20(2), pages 116-146, May.
  • Handle: RePEc:eme:jfrcpp:v:20:y:2012:i:2:p:116-146
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    References listed on IDEAS

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    1. Adam Pawlikowski, 2005. "The Polish deposit insurance scheme compared to arrangements adopted in other EU countries," NBP Working Papers 34, Narodowy Bank Polski, Economic Research Department.
    2. Bank for International Settlements, 2009. "An assessment of financial sector rescue programmes," BIS Papers, Bank for International Settlements, number 48, January.
    3. 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.
    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," Occasional Paper Series 117, European Central Bank.
    5. Enrico Perotti & Lev Ratnovski & Razvan Vlahu, 2011. "Capital Regulation and Tail Risk," International Journal of Central Banking, International Journal of Central Banking, vol. 7(4), pages 123-163, December.
    6. Robert A. Eisenbeis & George G. Kaufman, 2007. "Cross-border banking: challenges for deposit insurance and financial stability in the European Union," FRB Atlanta Working Paper 2006-15, Federal Reserve Bank of Atlanta.
    7. Rebecca McCaughrin & Simon T Gray & Alexandre Chailloux, 2008. "Central Bank Collateral Frameworks; Principles and Policies," IMF Working Papers 08/222, International Monetary Fund.
    8. 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.
    9. International Monetary Fund, 2008. "Cross-Border Coordination of Prudential Supervision and Deposit Guarantees," IMF Working Papers 08/283, International Monetary Fund.
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    Citations

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    Cited by:

    1. A. Michael Andrews, 2014. "Effective resolution regimes for financial institutions in ASEAN+3," Chapters,in: Global Shock, Risks, and Asian Financial Reform, chapter 12, pages 464-509 Edward Elgar Publishing.
    2. Mullineux, Andy, 2014. "Banking for the public good," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 87-94.

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