Trade-offs in Bank Resolution

Staff Discussion Notes, February 9, 2018

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Trade-offs in Bank Resolution

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Bibliographic details

• Authors: Giovanni Dell'Ariccia, Deniz O Igan, Elsie Addo Awadzi, Marc C Dobler, Damiano Sandri
• Published: February 9, 2018
• Series: Staff Discussion Notes
• DOI: https://doi.org/10.5089/9781484341001.006

Overview

• Title: Trade-offs in Bank Resolution
• Authors: Giovanni Dell'Ariccia, Deniz O Igan, Elsie Addo Awadzi, Marc C Dobler, Damiano Sandri
• Publication type: Staff Discussion Notes
• Date: February 9, 2018
• Summary of the note:
  • Revisits the debate on bank resolution regimes.
  • Presents a simple model of bank insolvency that transparently describes the trade-off involved between bail-outs, bail-ins, and larger capital buffers.
  • Looks for empirical evidence to assess the moral hazard consequences of bail-outs and the systemic spillovers from bail-ins.

Model and trade-off analysis

• Core analytical focus:
  • A simple model of bank insolvency framed to make transparent the trade-offs between:
  • bail-outs,
  • bail-ins,
  • larger capital buffers.
• Intended analytical goal:
  • To clarify how different resolution tools interact with incentives and stability outcomes.

Empirical assessment

• Empirical objectives:
  • Assess the moral hazard consequences of bail-outs.
  • Assess the systemic spillovers from bail-ins.
• Methodological note:
  • The note combines the theoretical model with empirical investigation to evaluate the real-world implications of different resolution regimes.

Subjects and keywords (areas emphasized)

• Subject areas:
  • Bank resolution
  • Bank resolution framework
  • Banking
  • Financial crises
  • Financial sector policy and analysis
  • Financial sector stability
  • Moral hazard
  • Spillovers
• Keywords (explicit):
  • bail in, bail-in power, bail-in process, bail-in regime, bail-out expectation, bank equity, Bank resolution, Bank resolution framework, bank stakeholder, central bank, equity capital, EU bail-in event, Financial regulation, Financial sector stability, Global, holding company, Moral hazard, public funds, recognition clause, resolution regime, SDN, Spillovers

Use cases and audience

• Target readership:
  • Policymakers and regulators concerned with bank resolution regimes.
  • Researchers studying moral hazard, financial stability, and resolution tool design.
  • Practitioners evaluating trade-offs among bail-outs, bail-ins, and capital regulation.

Staff Discussion Note: "Trade-offs in Bank Resolution", Giovanni Dell'Ariccia et al., February 9, 2018.

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