Bank Resolution Costs, Depositor Preference, and Asset Encumbrance

Author/Editor: Daniel C. Hardy
Publication Date: July 18, 2013
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: 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.
Series: Working Paper No. 13/172
Subject(s): Bankruptcy | Bank resolution | Banks

Publication Date: July 18, 2013
ISBN/ISSN: 9781484354100/1018-5941 Format: Paper
Stock No: WPIEA2013172 Pages: 30
US$18.00 (Academic Rate:
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