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Bank Resolution, Deposit Insurance, and Fragility

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  • Alkis Georgiadis-Harris
  • Maxi Guennewig

Abstract

Since the Great Financial Crisis, the share of deposits—both insured and uninsured—in bank liabilities has increased substantially. In this paper, we document this fact for the largest US banks. We show that it can be theoretically explained by the introduction of resolution powers, i.e. the ability to impose losses on bank shareholders and creditors. In such a world, banks issue deposits in order to channel resources towards uninsured depositors, imposing losses on insured depositors and forcing the government to conduct bailouts. Our model suggests that resolution and deposit insurance must be complemented by equity or long-term debt requirements.

Suggested Citation

  • Alkis Georgiadis-Harris & Maxi Guennewig, 2023. "Bank Resolution, Deposit Insurance, and Fragility," CRC TR 224 Discussion Paper Series crctr224_2023_477, University of Bonn and University of Mannheim, Germany.
    • Handle: RePEc:bon:boncrc:crctr224_2023_477
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    References listed on IDEAS

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    More about this item

    Keywords

    Bank Resolution; Deposit Insurance; and Fragility;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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