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Resolution of international banks: can smaller countries cope?

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  • Schoenmaker, Dirk

Abstract

The stability of a banking system ultimately depends on the strength and credibility of the fiscal backstop. While large countries can still afford to resolve large global banks on their own, small and medium-sized countries face a policy choice. This paper investigates the impact of resolution on banking structure. The financial trilemma model indicates that smaller countries can either conduct joint supervision and resolution of their global banks (based on single point of entry resolution) or reduce the size of their global banks and move to separate resolution of these banks’ national subsidiaries (based on multiple point of entry resolution). Euro-area countries are heading for joint resolution based on burden sharing, while the UK and Switzerland have implemented policies to downsize their banks. JEL Classification: F30, G21, G28

Suggested Citation

  • Schoenmaker, Dirk, 2017. "Resolution of international banks: can smaller countries cope?," ESRB Working Paper Series 34, European Systemic Risk Board.
  • Handle: RePEc:srk:srkwps:201734
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    File URL: https://www.esrb.europa.eu//pub/pdf/wp/esrbwp34.en.pdf
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    References listed on IDEAS

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    1. Anginer, Deniz & Cerutti, Eugenio & Martínez Pería, María Soledad, 2017. "Foreign bank subsidiaries' default risk during the global crisis: What factors help insulate affiliates from their parents?," Journal of Financial Intermediation, Elsevier, vol. 29(C), pages 19-31.
    2. Dewatripont, Mathias, 2014. "European banking: Bailout, bail-in and state aid control," International Journal of Industrial Organization, Elsevier, vol. 34(C), pages 37-43.
    3. Gandhi, Priyank & Lustig, Hanno & Plazzi, Alberto, 2016. "Equity Is Cheap for Large Financial Institutions: The International Evidence," Research Papers 3454, Stanford University, Graduate School of Business.
    4. Demirgüç-Kunt, Asli & Huizinga, Harry, 2013. "Are banks too big to fail or too big to save? International evidence from equity prices and CDS spreads," Journal of Banking & Finance, Elsevier, vol. 37(3), pages 875-894.
    5. Charles Goodhart & Dirk Schoenmaker, 2009. "Fiscal Burden Sharing in Cross-Border Banking Crises," International Journal of Central Banking, International Journal of Central Banking, vol. 5(1), pages 141-165, March.
    6. Pia Hüttl & Dirk Schoenmaker, 2016. "Fiscal capacity to support large banks," Policy Contributions 16765, Bruegel.
    7. Pauly, Louis W., 2014. "Governing global risks: The evolution of policy capacity in the financial sector," Discussion Papers, Research Unit: Global Governance SP IV 2014-103, WZB Berlin Social Science Center.
    8. Schoenmaker, Dirk, 2013. "Governance of International Banking: The Financial Trilemma," OUP Catalogue, Oxford University Press, number 9780199971596.
    9. Goodhart, Charles & Schoenmaker, Dirk, 2016. "The global investment banks are now all becoming American: does that matter for Europeans?," LSE Research Online Documents on Economics 67593, London School of Economics and Political Science, LSE Library.
    10. Luc Laeven & Fabián Valencia, 2013. "Systemic Banking Crises Database," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(2), pages 225-270, June.
    11. Daniel Gros & Dirk Schoenmaker, 2014. "European Deposit Insurance and Resolution in the Banking Union," Journal of Common Market Studies, Wiley Blackwell, vol. 52(3), pages 529-546, May.
    12. Yuliya Makarova & Anna Ilyina & Christian Schmieder & Eugenio M Cerutti, 2010. "Bankers Without Borders? Implications of Ring-Fencing for European Cross-Border Banks," IMF Working Papers 10/247, International Monetary Fund.
    13. Eugenio Cerutti & Anna Ilyina & Yulia Makarova & Christian Schmieder, 2010. "Bankers Without Borders? Implications of Ring-Fencing for European Cross-Border Banks," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
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    Cited by:

    1. Beck, Thorsten & Da-Rocha-Lopes, Samuel & Silva, Andre, 2017. "Sharing the Pain? Credit Supply and Real Effects of Bank Bail-ins," CEPR Discussion Papers 12058, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Burden Sharing; Global Financial Architecture; International Banks; Multiple Point of Entry; Resolution Planning; Single Point of Entry;

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • 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

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