Six Structures in Search of Stability

LSE Financial Markets Group Special Paper 236

19 Pages Posted: 19 Sep 2015

See all articles by Thomas Huertas

Thomas Huertas

Goethe University Frankfurt - Institute of Law and Finance; Center for Financial Studies

Date Written: July 1, 2015

Abstract

This paper analyses the proposition that adjusting structure can strengthen safety and therefore promote stability. It examines six proposals: Liikanen, Volcker, the US rule requiring foreign banking organisations (FBOs) to establish an intermediate holding company (IHC), depositor preference, bail-in plus total loss-absorbing capital (TLAC) and Vickers. Each endeavours to restructure banks along one or more of the following lines: activity, geography and/or creditor hierarchy. Only the creditor hierarchy approach holds the promise of enhancing financial stability, and the complete reordering (bail-in plus TLAC) is distinctly superior to the partial reordering implied by depositor preference. Indeed, bail-in plus TLAC opens the door to making banks resolvable. That in turn makes segregation by activity or by geography superfluous.

Keywords: banks, banking, depositor preference, bail-in, ring-fencing

JEL Classification: G01, G21, G24, G28

Suggested Citation

Huertas, Thomas, Six Structures in Search of Stability (July 1, 2015). LSE Financial Markets Group Special Paper 236, Available at SSRN: https://ssrn.com/abstract=2662251

Thomas Huertas (Contact Author)

Goethe University Frankfurt - Institute of Law and Finance ( email )

Campus Westend - Grüneburgplatz 1
Frankfurt, 60323
Germany

Center for Financial Studies ( email )

Grüneburgplatz 1
Goethe University
Frankfurt am Main, 60323
Germany

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