Compensating Victims of Bankrupted Financial Institutions: A Law and Economic Analysis

Journal of Financial Regulation and Compliance, Vol. 19, No. 2, pp. 156-173, 2011

32 Pages Posted: 5 Dec 2011

See all articles by Michael G. Faure

Michael G. Faure

University of Maastricht - Faculty of Law, Metro; Erasmus University Rotterdam (EUR) - Erasmus School of Law

Robert J. Dijkstra

Tilburg University

Date Written: December 5, 2011

Abstract

The purpose of this paper is to understand the incentive effects of existing compensation mechanisms in case of the bankruptcy of a financial institution. The paper uses insights of law and economics to predict the effects of compensation mechanisms on the incentives of depositors, financial institutions, financial regulators and the government. The paper shows that the current compensation system in the Netherlands will not provide sufficient incentives for all stakeholders to prevent the failure of a financial institution. Adjustments to this system are necessary to improve these incentives.

Keywords: torts, compensation, law and economics, deposit guarantee system, liquidation

JEL Classification: G21, G33, K22

Suggested Citation

Faure, Michael G. and Dijkstra, Robert J., Compensating Victims of Bankrupted Financial Institutions: A Law and Economic Analysis (December 5, 2011). Journal of Financial Regulation and Compliance, Vol. 19, No. 2, pp. 156-173, 2011. Available at SSRN: https://ssrn.com/abstract=1968357 or http://dx.doi.org/10.2139/ssrn.1968357

Michael G. Faure (Contact Author)

University of Maastricht - Faculty of Law, Metro ( email )

PO Box 616
Maastricht, 6200 MD
Netherlands
+31 - 43 - 388 30 60 (Phone)
+31 - 43 - 325 90 91 (Fax)

HOME PAGE: http://www.michaelfaure.be

Erasmus University Rotterdam (EUR) - Erasmus School of Law ( email )

3000 DR Rotterdam
Netherlands

Robert J. Dijkstra

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC 5000 LE
Netherlands

HOME PAGE: http://www.uvt.nl

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