Resolution threats and bank discipline – What Europe can learn for the Single Resolution Mechanism from U.S. experience

  • Can a tightening of the bank resolution regime lead to more prudent bank behavior? This policy paper reviews arguments for why this could be the case and presents evidence linking changes in bank resolution regimes with bank risk-taking. The authors find that the tightening of bank resolution in the U.S. (i.e., the introduction of the Orderly Liquidation Authority) significantly decreased overall risk-taking of the most affected banks. This effect, however, does not hold for the largest and most systemically important banks – too-big-to-fail seems to be unresolved. Building on the insights from the U.S. experience, the authors derive principles for effective resolution regimes and evaluate the emerging resolution regime for Europe.

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Author:Magdalena Ignatowski, Josef Korte
Parent Title (German):SAFE policy letter series ; 33
Series (Serial Number):SAFE policy letter (33)
Place of publication:Frankfurt am Main
Document Type:Working Paper
Date of Publication (online):2014/11/10
Date of first Publication:2014/11/10
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2014/11/26
Tag:Europe; USA; bank resolution regimes; risk-taking
Issue:October 2014
Page Number:8
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht