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Financial Restructuring and Resolution of Banks

Abstract : How do resolution frameworks affect the private restructuring of distressed banks? We model a distressed bank’s shareholders and creditors negotiating a restructuring given asymmetric information about asset quality and externalities onto the government. This yields negotiation delays used to signal asset quality. We find that strict bail-in rules increase delays by worsening informational frictions and reducing bargaining surplus. We characterize optimal bail-in rules for the government. We then consider the government’s possible involvement in negotiations. We find this can lead to shorter or longer delays. Notably, the government may gin from committing not to partake in negotiations.
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https://hal-hec.archives-ouvertes.fr/hal-01933873
Contributor : Antoine Haldemann <>
Submitted on : Saturday, November 24, 2018 - 3:38:45 PM
Last modification on : Wednesday, December 11, 2019 - 1:28:10 PM

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Jean-Edouard Colliard, Denis Gromb. Financial Restructuring and Resolution of Banks. 2018. ⟨hal-01933873⟩

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