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Bank resolution: a framework for the assessment of regulatory intervention

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  • Mathias Dewatripont
  • Xavier Freixas

Abstract

More than ever, the current crisis has highlighted the cost of banking crises in budgetary and economic growth terms. Whether or not to restructure a bank is a key determinant of who bears the costs. The present article surveys the main issues concerning banks' restructuring, by considering the bargaining game that is played between regulators and shareholders when a bank is in distress. This revolves around the framework of negotiation that was established by the regulator, the fall-back position which is determined by bankruptcy legislation, and the objective function of the regulator. In this context, we argue that it is possible to improve upon existing restructuring mechanisms by making banks' bail-outs less costly to taxpayers and improving the ex ante incentives of banks' managers and shareholders. Copyright 2011, Oxford University Press.

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  • Mathias Dewatripont & Xavier Freixas, 2011. "Bank resolution: a framework for the assessment of regulatory intervention," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 27(3), pages 411-436.
    • Handle: RePEc:oup:oxford:v:27:y:2011:i:3:p:411-436
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    File URL: http://hdl.handle.net/10.1093/oxrep/grr033
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    Cited by:

    1. Małgorzata Iwanicz-Drozdowska & Krzysztof Jackowicz & Maciej Karczmarczyk, 2021. "“The Crooked Smile of TCR†: Banks’ Solvency and Restructuring Costs in the European Banking Industry," SAGE Open, , vol. 11(3), pages 21582440211, September.
    2. Grund, Sebastian & Nomm, Nele & Walch, Florian, 2020. "Liquidity in resolution: comparing frameworks for liquidity provision across jurisdictions," Occasional Paper Series 251, European Central Bank.
    3. Lucyna Gornicka, 2014. "Shadow Banking and Traditional Bank Lending: The Role of Implicit Guarantees," Tinbergen Institute Discussion Papers 14-035/VI/DSF74, Tinbergen Institute, revised 16 Jun 2014.
    4. Michael Diemer & Uwe Vollmer, 2015. "What makes banking crisis resolution difficult? Lessons from Japan and the Nordic Countries," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 5(2), pages 251-277, December.
    5. Christian Pfister, Natacha Valla, 2018. "‘New Normal’ or ‘New Orthodoxy’? Elements of a Central Banking Framework for the After-Crisis," Working papers 680, Banque de France.
    6. Marinč, Matej & Rant, Vasja, 2014. "A cross-country analysis of bank bankruptcy regimes," Journal of Financial Stability, Elsevier, vol. 13(C), pages 134-150.
    7. Maier, Ulf, 2016. "Multinational banks: Supranational resolution regimes and the importance of capital regulation," Discussion Papers in Economics 29630, University of Munich, Department of Economics.

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