Optimal Bank Recovery
Electronic Access:
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Summary:
Banks’ living wills involve both recovery and resolution. Since it may not always be clear when recovery plans or actions should be triggered, there is a role for an objective metric to trigger recovery. We outline how such a metric could be constructed meeting criteria of (i) adequate loss absorption; (ii) distinguishing between weak and sound banks; (iii) little susceptibility to manipulation; (iv) timeliness; (v) scalable from the individual bank to the system. We show how this would have worked in the U.K., during 2007–11. This approach has the added advantage that it could be extended to encompass a whole ladder of sanctions of increasing severity as capital erodes.
Series:
Working Paper No. 2015/217
Subject:
Asset valuation Bank solvency Banking Financial institutions Financial sector policy and analysis Financial sector stability Loans Stocks Systemic risk
English
Publication Date:
September 30, 2015
ISBN/ISSN:
9781513584263/1018-5941
Stock No:
WPIEA2015217
Pages:
41
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