Bank Resolution Regimes and Systemic Risk

68 Pages Posted: 20 May 2020

See all articles by Thorsten Beck

Thorsten Beck

City University London - Sir John Cass Business School

Deyan Radev

Sofia University, Faculty of Economics and Business Administration

Isabel Schnabel

University of Bonn - Institute for Financial Economics and Statistics; Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods

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Date Written: May 2020

Abstract

We assess the ability of bank resolution frameworks to deal with systemic banking fragility. Using a novel and detailed database on bank resolution regimes in 22 member countries of the Financial Stability Board, we show that systemic risk, as measured by △CoVaR, increases more for banks in countries with more comprehensive bank resolution frameworks after negative system-wide shocks, such as Lehman Brothers' default, while it decreases more after positive system-wide shocks, such as Mario Draghi's "whatever it takes'' speech. These results suggest that more comprehensive bank resolution may exacerbate the effect of system-wide shocks and should not be solely relied on in cases of systemic distress.

Keywords: bail-in, Bank resolution regimes, systemic risk

JEL Classification: G01, G21, G28

Suggested Citation

Beck, Thorsten and Radev, Deyan and Schnabel, Isabel, Bank Resolution Regimes and Systemic Risk (May 2020). CEPR Discussion Paper No. DP14724, Available at SSRN: https://ssrn.com/abstract=3603954

Thorsten Beck (Contact Author)

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
United Kingdom

Deyan Radev

Sofia University, Faculty of Economics and Business Administration ( email )

15, Tzar Osvoboditel Blvd.
Sofia, 1504
Bulgaria

Isabel Schnabel

University of Bonn - Institute for Financial Economics and Statistics ( email )

Adenauerallee 24-42
Bonn, 53113
Germany

HOME PAGE: http://www.finance.uni-bonn.de/schnabel

Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Research on Collective Goods ( email )

Kurt-Schumacher-Str. 10
D-53113 Bonn, 53113
Germany
+49-228-9141665 (Phone)
+49-228-9141621 (Fax)

HOME PAGE: http://www.coll.mpg.de/team/page/isabel_schnabel

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