Measuring the Impact of a Bank Failure on the Real Economy. An EU-wide Analytical Framework

30 Pages Posted: 22 Jul 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

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

Antonio Josè Bravo Alvarez

FROB Autoridad de Resolución Ejecutiva

Multiple version iconThere are 2 versions of this paper

Date Written: June 25, 2021

Abstract

We present an analytical framework for quantifying the potential impact on the real economy stemming from a bank’s sudden liquidation, focusing on the consequences that arise when a credit institution interrupts its lending activities. In a first step, we quantify the potential credit shortfall faced by firms and households due to the sudden liquidation of a bank. In a second step, we estimate the impact of a firm’s credit shortfall on real outcomes via both a Factor-Augmented Vector Autoregression (FAVAR) model and a micro-econometric model. Appropriate reference values (benchmarks) are provided to assess the estimated outcomes. The illustrative results show that this harmonized approach is feasible across the Banking Union and it is applicable to banks of heterogeneous size and significance. Particularly in the case of the medium-sized banks, the implementation of this common analytical framework could provide useful insights to reduce the uncertainty about whether resolution is in the public interest, i.e. to what extent the failure of an institution would endanger financial stability.

Keywords: bank resolution, bank insolvency, crisis management, public interest assessment Classificat

JEL Classification: E58, G01, G21, G28

Suggested Citation

Vacca, Valerio Paolo and Bichlmeier, Fabian and Biraschi, Paolo and Boschi, Natalie 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 and Bravo Alvarez, Antonio Josè, Measuring the Impact of a Bank Failure on the Real Economy. An EU-wide Analytical Framework (June 25, 2021). Bank of Italy Occasional Paper No. 626, Available at SSRN: https://ssrn.com/abstract=3891642 or http://dx.doi.org/10.2139/ssrn.3891642

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

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

Antonio Josè Bravo Alvarez

FROB Autoridad de Resolución Ejecutiva

Madrid
Spain

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
34
Abstract Views
288
PlumX Metrics