Journal of Banking & Finance Vol. 65 2016
Too-international-to-fail? Supranational bank resolution and market discipline
Abstract
Supranational resolution of insolvent banks does not necessarily improve welfare. Supranational regulators are more inclined to bail-out banks indebted towards international creditors because they take into account cross-border contagion. When banks’ creditors are more likely to be bailed out, market discipline decreases and risk-taking by indebted banks increases. Depending on the trade-off between giving the right incentives ex ante and limiting contagion ex post, both a national and a supranational resolution framework can be optimal. In particular, if market discipline is low under both national and supranational resolution mechanisms, supranational resolution improves welfare as it stimulates interbank trade.
- DOI
- 10.1016/j.jbankfin.2016.01.005
- Volume
- 65
- Pages
- 41-58
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib