Optimal Forbearance of Bank Resolution

Schilling, Linda (2017): Optimal Forbearance of Bank Resolution. Published in:

Abstract

This paper analyzes a regulator's optimal strategic delay of resolving banks when the regulator's announcement of the intervention delay endogenously affects the depositors' run-propensity. Given intervention, the regulator either liquidates the remaining illiquid assets, or continues managing the assets (suspension intervention) at a reduced skill level. In either case, I show, the depositors may react to more conservative policy by preempting the regulator: The depositors run on the bank more often ex ante if the regulator tolerates fewer withdrawals until intervention. A policy of never intervening can leave the bank more stable than a conservative policy that tolerates few withdrawals.

• Item Type: MPRA Paper
• Language: English
• Keywords: Bank resolution, intervention delay, global games, suspension of convertibility, bank run
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E61 - Policy Objectives ; Policy Designs and Consistency ; Policy Coordination; G - Financial Economics > G2 - Financial Institutions and Services; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G28 - Government Policy and Regulation; G - Financial Economics > G3 - Corporate Finance and Governance; G - Financial Economics > G3 - Corporate Finance and Governance > G33 - Bankruptcy ; Liquidation; G - Financial Economics > G3 - Corporate Finance and Governance > G38 - Government Policy and Regulation

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