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Bank Insolvencies, Regulatory Forbearance and Ambiguity


  • Dmitri V. Vinogradov

    () (Universität Heidelberg, Alfred-Weber-Institut für Wirtschaftswissenschaften
    Universität Heidelberg, Alfred-Weber-Institut für Wirtschaftswissenschaften)


Banking regulators often practice forbearance and ambiguity in insolvency resolutions. The paper examines the effects of regulatory forbearance and ambiguity in a context of allocational efficiency. Bailouts, liquidations and their stochastic policy mix lead to suboptimal allocations if banks do not internalize insolvency costs. The policy of forbearance may make banks internalizing such costs and improves the efficiency of intermediation.

Suggested Citation

  • Dmitri V. Vinogradov, 2006. "Bank Insolvencies, Regulatory Forbearance and Ambiguity," Working Papers 0431, University of Heidelberg, Department of Economics, revised Sep 2006.
  • Handle: RePEc:awi:wpaper:0431

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    References listed on IDEAS

    1. James, Christopher, 1991. " The Losses Realized in Bank Failures," Journal of Finance, American Finance Association, vol. 46(4), pages 1223-1242, September.
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    More about this item


    Banks; insolvency resolution; forbearance; constructive ambiguity;

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • 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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