Measuring the impact of a bank failure on the real economy. An EU-wide analytical framework

Valerio Vacca, Fabian Bichlmeier (), Paolo Biraschi (), Natalie Boschi, Antonio J. Bravo Alvarez, Luciano Di Primio (), André Ebner, Silvia Hoeretzeder, Elisa Llorente Ballesteros, Claudia Miani (), Giacomo Ricci (), Raffaele Santioni (), Stefan Schellerer and Hanna Westman
Additional contact information
Fabian Bichlmeier: Deutsche Bundesbank
Paolo Biraschi: Single Resolution Board
Natalie Boschi: Bafin
Antonio J. Bravo Alvarez: FROB Autoridad de Resolución Ejecutiva
Luciano Di Primio: Banca d'Italia
Silvia Hoeretzeder: Oesterreichische Nationalbank
Elisa Llorente Ballesteros: Banco de España
Claudia Miani: Single Resolution Board
Giacomo Ricci: Banca d'Italia
Stefan Schellerer: Oesterreichische Nationalbank

No 626, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

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 (search for similar items in EconPapers)
JEL-codes: E58 G01 G21 G28 (search for similar items in EconPapers)
Date: 2021-06
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-mac and nep-mon
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Working Paper: Measuring the impact of a bank failure on the real economy: an EU-wide analytical framework (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_626_21

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