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Subordinate Resolution - An Empirical Analysis of European Union Subsidiary Banks

Author

Listed:
  • Thomas Conlon

    (Smurfit Graduate Business School, University College Dublin)

  • John Cotter

    (Smurfit Graduate Business School, University College Dublin)

Abstract

To help curtail future sovereign exposures to banking losses, the European Union introduced the Bank Resolution and Recovery Directive, which mandates bail-in of creditors in the event of significant bank losses. In this paper, we examine the impact of resolution on subsidiary banks, notable in terms of their substantial role throughout the European Union. Significant differences in risk and funding characteristics are apparent between domestic and cross-border European bank subsidiaries. Subsidiary banks are found to possess a larger proportion of loss absorbing capacity than underlying parent banks. Results indicate the suitability of single point of entry resolution in the case of domestic subsidiaries and multiple points of entry resolution for cross-border subsidiaries. Our findings highlight a worrying decline in loss absorbing capacity in European banks more generally since 2006, pointing to a necessary future focus on broad capital thresholds to ensure the success of the resolution model.

Suggested Citation

  • Thomas Conlon & John Cotter, 2015. "Subordinate Resolution - An Empirical Analysis of European Union Subsidiary Banks," Working Papers 201501, Geary Institute, University College Dublin.
  • Handle: RePEc:ucd:wpaper:201501
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    References listed on IDEAS

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    Cited by:

    1. Schilirò, Daniele, 2016. "Rules, Imbalances and Growth in the Eurozone," MPRA Paper 75641, University Library of Munich, Germany.

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    Keywords

    Resolution Planning; Bail-In; Bank Failure; Bank Subsidiaries;

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