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The Banking Union’s resolution or liquidation approach

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  • Ricardo Cabral

    (ISEG, University of Lisbon)

Abstract

This paper argues that the Banking Union increased bank capital requirements and tightened crisis response policy instruments, favoring bank resolutions or liquidations, while hindering bank bailouts. This framework had significant fiscal costs and redistributive effects, as it led to the application of resolution or liquidation measures to technically solvent or even adequately capitalized banks, sometimes contributing to bank runs. The paper argues that the resolution instrument results in arbitrage opportunities that might discourage market-driven acquisitions of failing banks. Finally, it argues that this issue could be partly addressed through a well-designed public bailout instrument.

Suggested Citation

  • Ricardo Cabral, 2025. "The Banking Union’s resolution or liquidation approach," Journal of Banking Regulation, Palgrave Macmillan, vol. 26(2), pages 111-128, June.
    • Handle: RePEc:pal:jbkreg:v:26:y:2025:i:2:d:10.1057_s41261-024-00244-z
    DOI: 10.1057/s41261-024-00244-z
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    More about this item

    Keywords

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    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G00 - Financial Economics - - General - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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