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Resolution Design and Investment in Banking Groups

Author

Listed:
  • Banal-Estanol, Albert
  • Lóránth, Gyöngyi
  • Pothier, David

Abstract

We study how resolution regimes affect investment in banking groups with subsidiaries of varying financial strength. Centralized regimes that preserve the group structure enable ex post support for weaker units but may constrain ex ante investment. In contrast, decentralized regimes that resolve units separately may enhance ex ante investment but limit risk-sharing ex post. The relative efficiency of each approach depends on the group’s risk profile and profitability. Allowing both regimes to coexist improves efficiency relative to imposing a uniform regime across all groups. A single resolution authority may face a time-inconsistency problem in enforcing limits on ex post risk-sharing.

Suggested Citation

  • Banal-Estanol, Albert & Lóránth, Gyöngyi & Pothier, David, 2026. "Resolution Design and Investment in Banking Groups," CEPR Discussion Papers 21038, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:21038
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    File URL: https://cepr.org/publications/DP21038
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    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • 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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