Bank Resolution Costs, Depositor Preference, and Asset Encumbrance
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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. 2013/172
Subject:
Bank resolution Banking Collateral Deposit insurance Financial crises Financial institutions Legal support in revenue administration Revenue administration
English
Publication Date:
July 18, 2013
ISBN/ISSN:
9781484354100/1018-5941
Stock No:
WPIEA2013172
Pages:
30
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