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Cleaning up the refuse from a financial crisis: the case for a resolution management corporation


  • James B. Thomson


Systemic banking and financial crises invariably result in the transfer of a large volume of distressed financial assets into the hands of the government, which must later dispose of them. The fiscal and economic costs of the crisis and the speed of recovery depend on how effectively the government’s salvage operations can re-privatize these assets. To maximize the operations’ effectiveness, I propose that the government create a temporary resolution management corporation. Drawing on Kane’s (1990) asset-salvage principles, as well as the U.S. experience with special-purpose entities for managing and disposing of assets stripped from distressed financial firms’ balance sheets, I propose a design for such a corporation.

Suggested Citation

  • James B. Thomson, 2010. "Cleaning up the refuse from a financial crisis: the case for a resolution management corporation," Working Paper 1015, Federal Reserve Bank of Cleveland.
  • Handle: RePEc:fip:fedcwp:1015

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    References listed on IDEAS

    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," American Economic Review, American Economic Association, vol. 99(2), pages 466-472, May.
    2. Joe Peek & Eric S. Rosengren, 2005. "Unnatural Selection: Perverse Incentives and the Misallocation of Credit in Japan," American Economic Review, American Economic Association, vol. 95(4), pages 1144-1166, September.
    3. Charles Kahn & Andrew Winton, 2004. "Moral Hazard and Optimal Subsidiary Structure for Financial Institutions," Journal of Finance, American Finance Association, vol. 59(6), pages 2531-2575, December.
    4. Gorton, Gary & Huang, Lixin, 2006. "Bank panics and the endogeneity of central banking," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1613-1629, October.
    5. Ramon P. DeGennaro & James B. Thomson, 1992. "Capital forbearance and thrifts: an ex post examination of regulatory gambling," Working Paper 9209, Federal Reserve Bank of Cleveland.
    6. Christopher J. Pike & James B. Thomson, 1991. "The RTC and the escalating costs of the thrift insurance mess," Economic Commentary, Federal Reserve Bank of Cleveland, issue May.
    7. Joseph G. Haubrich & James B. Thomson & O. Emre Ergungor, 2007. "Central banks and crisis management," Annual Report, Federal Reserve Bank of Cleveland, pages 7-20.
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