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Cross-border resolution of global banks

Author

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  • Faia, Ester
  • Weder di Mauro, Beatrice

Abstract

Most recent regulations establish that resolution of global banking groups shall be done according to bail-in procedures and following a Single Point of Entry (SPE) as opposed to a Multiple Point of Entry (MPE) approach. The latter requires parent holding of global groups to put up front the equity capital needed to absorb losses possibly emerging in foreign subsidiaries-branches. No model rationalized so far such resolution regime. We build a model of optimal design of resolution regimes and compare three regimes: SPE with cooperative authorities, SPE with non-cooperative authorities and MPE (ring-fencing). We find that the costs for bondholders of bail-inable instruments is generally higher under noncooperative regimes and ring-fencing. We also find that in those cases banks have ex ante incentives to reduce their exposure in foreign assets. We also examine recent case studies that help us rationalize the model results.

Suggested Citation

  • Faia, Ester & Weder di Mauro, Beatrice, 2015. "Cross-border resolution of global banks," SAFE Working Paper Series 88, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
  • Handle: RePEc:zbw:safewp:88
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    References listed on IDEAS

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    1. Stijn Claessens & Neeltje van Horen, 2015. "The Impact of the Global Financial Crisis on Banking Globalization," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 63(4), pages 868-918, November.
    2. Friederike Niepmann & Tim Schmidt-Eisenlohr, 2013. "Bank Bailouts, International Linkages, and Cooperation," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 270-305, November.
    3. Virginia Skidmore Rutledge & Michael Moore & Marc Dobler & Wouter Bossu & Nadège Jassaud & Jianping Zhou, 2012. "From Bail-out to Bail-in; Mandatory Debt Restructuring of Systemic Financial Institutions," IMF Staff Discussion Notes 12/03, International Monetary Fund.
    4. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    5. Dirk Schoenmaker, 2013. "Post-Crisis Reversal in Banking and Insurance Integration: An Empirical Survey," European Economy - Economic Papers 2008 - 2015 496, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
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    Cited by:

    1. Jan Fagerberg & Staffan Laestadius & Ben R. Martin, 2016. "The Triple Challenge for Europe: The Economy, Climate Change, and Governance," Challenge, Taylor & Francis Journals, vol. 59(3), pages 178-204, May.
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    6. Hüser, Anne-Caroline & Hałaj, Grzegorz & Kok, Christoffer & Perales, Cristian & van der Kraaij, Anton, 2018. "The systemic implications of bail-in: A multi-layered network approach," Journal of Financial Stability, Elsevier, vol. 38(C), pages 81-97.
    7. Sarah Zech & Bernd Rudolph, 2015. "Bail-in als stumpfes Schwert zur Bankenrettung? Sanierung und Abwicklung in der europäischen Bankenunion," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 68(20), pages 25-34, October.
    8. Dyreson, Ana & Miller, Franklin, 2016. "Night sky cooling for concentrating solar power plants," Applied Energy, Elsevier, vol. 180(C), pages 276-286.
    9. Agnieszka Trzcinska, 2015. "The Impact of the New Resolution Regime on Public Support to Banks (Udzial sektora publicznego w kosztach ratowania bankow w swietle nowych przepisow w zakresie restrukturyzacji i uporzadkowanej likwi," Problemy Zarzadzania, University of Warsaw, Faculty of Management, vol. 13(55), pages 120-133.
    10. World Bank & Nicholas Institute, 2016. "Tuna Fisheries," World Bank Other Operational Studies 28412, The World Bank.
    11. Urban, Frauke & Geall, Sam & Wang, Yu, 2016. "Solar PV and solar water heaters in China: Different pathways to low carbon energy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 64(C), pages 531-542.
    12. Nagurney, Anna & Shukla, Shivani, 2017. "Multifirm models of cybersecurity investment competition vs. cooperation and network vulnerability," European Journal of Operational Research, Elsevier, vol. 260(2), pages 588-600.

    More about this item

    Keywords

    single point of entry; multiple point of entry; strategic interaction of regulators; financial spillover; financial retrenchment;

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • F3 - International Economics - - International Finance

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