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Bank Resolution Costs, Depositor Preference, and Asset Encumbrance

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  • Mr. Daniel C Hardy

Abstract

Depositor preference and collateralization of borrowing may reduce the cost of settling the conflicts among creditors that arises in case of resolution or bankruptcy. This net benefit, which may be capitalized into the value of the bank rather than affect creditors’ expected returns, should result in lower overall funding costs and thus a lower probability of distress despite increasing encumbrance of the bank’s balance sheet. The benefit is maximized when resolution is initiated early enough for preferred depositors to remain fully protected.

Suggested Citation

  • Mr. Daniel C Hardy, 2013. "Bank Resolution Costs, Depositor Preference, and Asset Encumbrance," IMF Working Papers 2013/172, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2013/172
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    Cited by:

    1. A. Michael Andrews, 2014. "The role of deposit insurance in financial stability: issues and options in the ASEAN+3," Chapters, in: Iwan J. Azis & Hyun S. Shin (ed.), Global Shock, Risks, and Asian Financial Reform, chapter 11, pages 416-463, Edward Elgar Publishing.
    2. Anatoli Segura & Javier Suarez, 2017. "How Excessive Is Banks’ Maturity Transformation?," Review of Financial Studies, Society for Financial Studies, vol. 30(10), pages 3538-3580.
    3. Kumudini Hajra & Ramadhian Moetomo, 2020. "Depositor Preference and Implications for Deposit Insurance," IADI Policy Briefs 1, International Association of Deposit Insurers.
    4. Elena Mattana & Ettore Panetti, 2021. "The Welfare Costs of Self‐Fulfilling Bank Runs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(2-3), pages 401-440, March.
    5. Anatoli Segura & Javier Suarez, 2017. "How Excessive Is Banks’ Maturity Transformation?," Review of Financial Studies, Society for Financial Studies, vol. 30(10), pages 3538-3580.
    6. Grzegorz Hałaj, 2016. "Dynamic Balance Sheet Model With Liquidity Risk," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 19(07), pages 1-37, November.
    7. Goodhart, Charles & Avgouleas, Emilios, 2014. "A Critical Evaluation of Bail-in as a Bank Recapitalisation Mechanism," CEPR Discussion Papers 10065, C.E.P.R. Discussion Papers.

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