Bank Resolution and Multinational Banks

27 Pages Posted: 21 Jul 2020

See all articles by Vittoria Cerasi

Vittoria Cerasi

Corte dei conti; Università degli Studi di Milano-Bicocca - Center for European Studies (CefES)

Stefano Montoli

University of Milano-Bicocca

Date Written: July 14, 2020

Abstract

This paper studies the impact of different resolution policies on the choice of banks to expand abroad. The regulator can choose to resolve banks through bail-in or bail-out or a combination of the two. The choice of the regulator affects the cost of funding of banks, endogenous in the model. We study the relative profitability of alternative bank corporate structures, either multinational (large and diversified) or domestic (small and nondiversified) for different levels of public support. Our model allows us to identify the potential impact of the resolution policy on the structure of the banking system. Lower levels of public support increase the cost of funding for all banks, in line with recent empirical evidence. We show that a reduction in the level of public support (from bail-out to bail-in) induces banks to expand abroad in search for alternatives to save on their funding costs. Finally, we are able to identify the optimal resolution mix by taking into account the reaction of banks to the policy.

Keywords: G21, G28

JEL Classification: Bank regulation; bail-in; multinational banks; bank funding cost

Suggested Citation

Cerasi, Vittoria and Montoli, Stefano, Bank Resolution and Multinational Banks (July 14, 2020). University of Milan Bicocca Department of Economics, Management and Statistics Working Paper No. 447, Available at SSRN: https://ssrn.com/abstract=3650813 or http://dx.doi.org/10.2139/ssrn.3650813

Vittoria Cerasi (Contact Author)

Corte dei conti ( email )

viale Mazzini
Roma, Roma 00195
Italy

Università degli Studi di Milano-Bicocca - Center for European Studies (CefES) ( email )

U6 Building
Viale Piero e Alberto Pirelli, 22
Milano, 20126
Italy

Stefano Montoli

University of Milano-Bicocca ( email )

Piazza Ateneo Nuovo 1
Italy, MI Milano 20126
Italy

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