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A game theory approach to optimizing the banking and financial resolution framework

Author

Listed:
  • Gabriel Mitache

    (Academy of Economic Studies, Bucharest and National Bank of Romania)

Abstract

Before the 2007-2008 financial crisis, creditinstitutions were assured (though not officially or formally) that if they were large enough they would be rescued with tax-payers’ money, an action also known as bail-out, denoting what became known as the “too big to fail” paradigm. The introduction of the Bank Recovery and Resolution Directive (2014/59/EU) proposes a legal framework that aims at eliminating the possibility of bailing-out institutions. This paper has the objective of assessing througha game theory approachto what extent the BRRDirectivehas the potential to achieve its purpose and if there are identifiable possible improvements to this framework that could be considered for practical purposes or for a possible future review of the legal framework.The term institution, for the purpose of this paper, refers to credit institutions but can also be read as referring to other types of financial institutions such as investment firms or insurance companies

Suggested Citation

  • Gabriel Mitache, 2018. "A game theory approach to optimizing the banking and financial resolution framework," Scientific Papers 0013, Institute of Financial Studies.
  • Handle: RePEc:fst:wpaper:0013
    as

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    File URL: https://revista.isfin.ro/wp-content/uploads/2018/05/5.5_Gabriel-Mitrache_EN-1.pdf
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    References listed on IDEAS

    as
    1. Avinash Persaud, 2014. "Why Bail-In Securities Are Fool's Gold," Policy Briefs PB14-23, Peterson Institute for International Economics.
    2. DeYoung, Robert & Kowalik, Michal & Reidhill, Jack, 2013. "A theory of failed bank resolution: Technological change and political economics," Journal of Financial Stability, Elsevier, vol. 9(4), pages 612-627.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    banking; banking union; bank resolution; central banking; bank recovery; bank supervision; BRRD; game theory;

    JEL classification:

    • D04 - Microeconomics - - General - - - Microeconomic Policy: Formulation; Implementation; Evaluation
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • 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
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law

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