Bank Restructuring in the EU: Which Way to Go?

Abstract

We empirically analysed the costs of bank restructuring measures undertaken in the EU countries during recent global financial crisis under the state aid framework. With a unique dataset from over 80 bank case studies in 2008-2014, we modeled the determinants of bailout costs and ranked the cost of each tool applied. We have found that the most important determinant was level of capital adequacy, while the most cost-consuming tool — liquidation of a bank. Thus, our study provides implications on the selection of state aid tools and sheds a new light on their costs. Overall, we concluded that banks’ higher loss absorption capacity, strengthened supervision over small and medium-sized banks and restrictive approach to diagnose bank’s problems may limit the costs of future rescue operations.

Keywords: Restructuring; State aid; Bailout; Resolution

JEL Classification: G21, G28, H12