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The Case for Bail-Ins

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  • Huertas, Thomas F.

    (Ernst & Young LLP, London)

Abstract

The case for bail-ins is simple. Bail-ins are superior to bail-outs, and bail-ins are superior to insolvency and liquidation. Bail-ins are potentially a powerful resolution tool, that can help make banks, even the largest and most complex banks, 'safe to fail'. Bail-ins can potentially help assure that investors, not taxpayers, bear the cost of bank failure. And bail-ins can materially help reduce both the social cost and the disruption to markets that insolvency and liquidation could cause. So bail-ins deserve a place in the resolution tool kit that should be at authorities' disposal, if a bank fails to meet threshold conditions and needs to be resolved. But for bail-ins to be effective, they will need to be combined with other tools, and both banks and authorities will need to take preparatory measures.

Suggested Citation

  • Huertas, Thomas F., 2012. "The Case for Bail-Ins," Working Papers 12-17, University of Pennsylvania, Wharton School, Weiss Center.
    • Handle: RePEc:ecl:upafin:12-17
    as

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    File URL: http://fic.wharton.upenn.edu/fic/papers/12/12-17.pdf
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    References listed on IDEAS

    as
    1. Thomas F. Huertas, 2011. "Crisis: Cause, Containment and Cure," Palgrave Macmillan Books, Palgrave Macmillan, edition 2, number 978-0-230-32135-9, December.
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