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Structure and Resolution in Banking: Are They Substitutes?

Author

Listed:
  • Alfred Duncan
  • Charles Nolan

Abstract

Can bank resolution replace ring-fencing? We develop a simple framework of expected systemic loss in which structural separability and resolvability interact. When either of two features holds-structure makes resolution work better, or it reduces the support needed during failure-resolution and ring-fencing become complements, not substitutes. Contrary to conventional wisdom, as the credibility of using resolution rises, the optimal degree of ring-fencing often increases; easing is warranted only in knife-edge cases where structure brings no marginal benefit. A private-social comparison predicts under-investment in structure and preparedness. In general, better resolvability strengthens the case for ring-fencing.

Suggested Citation

  • Alfred Duncan & Charles Nolan, 2026. "Structure and Resolution in Banking: Are They Substitutes?," CAMA Working Papers 2026-48, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2026-48
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    File URL: https://crawford.anu.edu.au/sites/default/files/2026-06/48_2026_Duncan_Nolan.pdf
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    JEL classification:

    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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