Measuring the Impact of a Bank Failure on the Real Economy: An EU-Wide Analytical Framework

30 Pages Posted: 16 Jun 2021

See all articles by Valerio Paolo Vacca

Valerio Paolo Vacca

Bank of Italy

Fabian Bichlmeier

Deutsche Bundesbank

Paolo Biraschi

Single Resolution Board

Natalie Boschi

Bundesanstalt für Finanzdienstleistungsaufsicht

Antonio Bravo

FROB Autoridad de Resolución Ejecutiva

Luciano Di Primio

Bank of Italy

André Ebner

Deutsche Bundesbank

Silvia Hoeretzeder

Oesterreichische Nationalbank (OeNB)

Elisa Llorente Ballesteros

Banco de España

Claudia Miani

Single Resolution Board

Giacomo Ricci

Bank of Italy

Raffaele Santioni

Bank of Italy

Stefan Schellerer

Oesterreichische Nationalbank (OeNB)

Hanna Westman

Rahoitusvakausvirasto; Finnish Financial Stability Authority

Multiple version iconThere are 2 versions of this paper

Date Written: June, 2021

Abstract

The crisis management framework for banks in the European Union (EU) requires the resolution authorities to identify the existence of a public interest to resolve an ailing bank, rather than to open normal insolvency proceedings (NIPs). The Public Interest Assessment (PIA) determines whether resolution objectives, including the safeguard of financial stability, can be better preserved using resolution tools than NIPs .This paper provides a contribution to the ongoing discussion on the implementation of the PIA, by presenting an analytical framework to quantify the potential impact on the real economy stemming from a bank’s failure under NIPs through the interruption of the lending activity (“credit channel”). The framework is harmonized across the jurisdictions belonging to the Banking Union and aims to improve the quantitative leg of the PIA, to be coupled with qualitative elements. In a first step, we quantify the potential credit shortfall faced by firms and households due to the abrupt closure of a bank. In a second step, the impact of the credit shortfall on real outcomes is estimated via a FAVAR model and via a micro-econometric model. Reference values are provided to assess the relevance of the estimated outcomes. The illustrative results show that such a harmonized approach can be applied across the Banking Union and to banks of heterogeneous size. In case of mid-sized banks, this common analytical framework could reduce the uncertainty regarding the extent to which the failure of the institution could have a negative impact to the real economy if the lending activity is interrupted as possibly the case under NIPs.

JEL Classification: E58, G01, G21, G28

Suggested Citation

Vacca, Valerio Paolo and Bichlmeier, Fabian and Biraschi, Paolo and Boschi, Natalie and Bravo, Antonio and Primio, Luciano Di and Ebner, André and Hoeretzeder, Silvia and Ballesteros, Elisa Llorente and Miani, Claudia and Ricci, Giacomo and Santioni, Raffaele and Schellerer, Stefan and Westman, Hanna Ulrika and Westman, Hanna Ulrika, Measuring the Impact of a Bank Failure on the Real Economy: An EU-Wide Analytical Framework (June, 2021). ESRB: Working Paper Series 2021/122, Available at SSRN: https://ssrn.com/abstract=3867915 or http://dx.doi.org/10.2139/ssrn.3867915

Valerio Paolo Vacca (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Fabian Bichlmeier

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Paolo Biraschi

Single Resolution Board ( email )

Brussels, 1000

Natalie Boschi

Bundesanstalt für Finanzdienstleistungsaufsicht

Bonn
Germany

Antonio Bravo

FROB Autoridad de Resolución Ejecutiva ( email )

Madrid
Spain

Luciano Di Primio

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

André Ebner

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Silvia Hoeretzeder

Oesterreichische Nationalbank (OeNB)

Otto-Wagner-Platz 3, PO Box 61
Vienna,
1010 Vienna, A-1011
Austria

Elisa Llorente Ballesteros

Banco de España

Alcala 50
Madrid 28014
Spain

Claudia Miani

Single Resolution Board ( email )

Brussels, 1000

Giacomo Ricci

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Raffaele Santioni

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Stefan Schellerer

Oesterreichische Nationalbank (OeNB) ( email )

Otto-Wagner-Platz 3, PO Box 61
Vienna,
1010 Vienna, A-1011
Austria

Hanna Ulrika Westman

Rahoitusvakausvirasto ( email )

Helsinki
Finland
+358295253522 (Phone)

HOME PAGE: http://www.rvv.fi

Finnish Financial Stability Authority ( email )

Työpajankatu 13
PL 70
Helsinki, 00581
Finland

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