Too-International-to-Fail? Supranational Bank Resolution and Market Discipline
Gornicka, Lucyna Anna; Zoican, Marius Andrei (2016), Too-International-to-Fail? Supranational Bank Resolution and Market Discipline, Journal of Banking and Finance, 65, p. 41--58. 10.1016/j.jbankfin.2016.01.005
TypeArticle accepté pour publication ou publié
Journal nameJournal of Banking and Finance
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Abstract (EN)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.
Subjects / KeywordsBank regulation; Contagion; Market discipline; Moral hazard
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