Bank Recovery and Resolution Planning, Liquidity Management and Fragility

41 Pages Posted: 25 May 2024

See all articles by Ettore Panetti

Ettore Panetti

University of Naples Federico II, CSEF - Center for Studies in Economics and Finance, Students; UECE - Research Unit on Complexity in Economics; SUERF - The European money and finance forum; CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF)

Luca Deidda

Università degli Studi di Sassari - Department of Economics and Business; Universita di Cagliari - Centre for North South Economic Research (CRENOS)

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Abstract

We study how regulation shapes the interaction between financial fragility and bank liquidity management, and propose a rationale for the complementarity between bank recovery and resolution planning. We analyze an economy in which a benevolent resolution authority sets a bank resolution plan to suspend deposit withdrawals and create a ``good bank'' at a cost in the event of a depositors' run. In such a framework, banks maximize expected welfare if deciding ex ante how to manage liquidity during runs. However, this choice is time inconsistent. Therefore, regulators need to force banks to commit to it through recovery planning.

Keywords: banks, liquidity, financial fragility, financial regulation, resolution

Suggested Citation

Panetti, Ettore and Deidda, Luca, Bank Recovery and Resolution Planning, Liquidity Management and Fragility. Available at SSRN: https://ssrn.com/abstract=4841866 or http://dx.doi.org/10.2139/ssrn.4841866

Ettore Panetti (Contact Author)

University of Naples Federico II, CSEF - Center for Studies in Economics and Finance, Students ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, 80126
Italy

UECE - Research Unit on Complexity in Economics ( email )

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SUERF - The European money and finance forum ( email )

PO Box 98
Amsterdam, 1000AB
Netherlands

CSEF - University of Naples Federico II - Centre for Studies in Economics and Finance (CSEF) ( email )

Via Cintia
Complesso Monte S. Angelo
Naples, Naples 80126
Italy

Luca Deidda

Università degli Studi di Sassari - Department of Economics and Business ( email )

via Muroni 25
Sassari, Sassari 07100
Italy

Universita di Cagliari - Centre for North South Economic Research (CRENOS) ( email )

Italy

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