Trade-offs in Bank Resolution

ByGiovanni Dell'Ariccia, Deniz O Igan, Elsie Addo Awadzi, Marc C Dobler, Damiano Sandri

February 9, 2018

Disclaimer: This Staff Discussion Note represents the views of the authors and does not necessarily represent IMF views or IMF policy. The views expressed herein should be attributed to the authors and not to the IMF, its Executive Board, or its management. Staff Discussion Notes are published to elicit comments and to further debate.

Summary

This SDN revisits the debate on bank resolution regimes, first by presenting a simple model of bank insolvency that transparently describes the trade-off involved between bail-outs, bail-ins, and larger capital buffers. The note then looks for empirical evidence to assess the moral hazard consequences of bail-outs and the systemic spillovers from bail-ins.

Subject: Bank resolution, Bank resolution framework, Banking, Financial crises, Financial sector policy and analysis, Financial sector stability, Moral hazard, Spillovers

Keywords: 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

Pages:
42
Volume:
2018
DOI:
https://doi.org/10.5089/9781484341001.006
Issue:
002
Series:
Staff Discussion Notes No. 2018/002
Stock No:
SDNEA2018002
ISBN:
9781484341001
ISSN:
2617-6750

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