The German Bank Restructuring Act: An Economic Perspective

German Working Papers in Law and Economics, Vol. 1, Issue 1, Article 16, 2011

U. of St. Gallen Law & Economics Working Paper No. 2012-03

15 Pages Posted: 13 Feb 2012 Last revised: 11 Dec 2012

See all articles by Camillo von Muller

Camillo von Muller

University of St Gallen, Institute of Management

Date Written: October 1, 2011

Abstract

The paper explores incentives created by the German Bank Restructuring Act for investors holding assets in systemically important banks (SIBs). Its purpose is to examine consequences that follow for risk choices of SIBs, as well as for Germany’s financial system. Applying the analytical model of Stigliz (1990) the study reinforces the view that regulators can induce SIBs to forego risks by curbing promises of systemic support. Adverse consequences result from the fact that the Bank Restructuring Act is affecting different groups of SIB-investors heterogeneously. This leads to macro-effects that bear potentials to offset risk reductions achieved on the micro level.

Keywords: Bailout Guarantees, Banking Act, Bank Reorganization Act, Bank Restructuring Act, Bank Restructuring Fund Act, Financial Markets, Risk, Systemically Important Institutions

JEL Classification: G01, G21, G32, K22, K29, N24

Suggested Citation

von Muller, Camillo, The German Bank Restructuring Act: An Economic Perspective (October 1, 2011). German Working Papers in Law and Economics, Vol. 1, Issue 1, Article 16, 2011, U. of St. Gallen Law & Economics Working Paper No. 2012-03, Available at SSRN: https://ssrn.com/abstract=2002334

Camillo Von Muller (Contact Author)

University of St Gallen, Institute of Management ( email )

Dufourstrasse 40a
St Gallen, CH-9000
Switzerland

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