The interplay between large banks' prudential and resolution frameworks: do we need further improvements?

Maurizio Trapanese (), Sabrina Bellacci (), Marcello Bofondi, Giuseppe DE Martino (), Sebastiano Laviola () and Valerio Vacca
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Maurizio Trapanese: Banca d'Italia
Sabrina Bellacci: Banca d'Italia
Giuseppe DE Martino: Banca d'Italia
Sebastiano Laviola: Single Resolution Board

No 807, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper explains the essential features of the too-big-to-fail regulatory framework finalized after the financial crisis of 2007-08 and explores whether the current large banks' prudential and resolution frameworks work as originally intended and whether there is room for further improvements. The aim is to identify the policy areas whose effectiveness could be enhanced through a greater integration between the prudential and the resolution policies. We focus on the banks of the European Banking Union classified as significant. We find that there is a substantial integration between the prudential and resolution frameworks. However, some further improvements could be achieved with reference to: 1) the consistency between the assessments of a bank's systemic importance and its resolvability; 2) the coordination between the recovery and the resolution plans; 3) the interaction between capital buffers and minimum requirements; 4) the information sharing between the micro-prudential and resolution authorities and the macro-prudential ones. In developing our analysis, we make also reference to the recent episodes of banking crises and to the work under way at the international level to draw initial lessons from these episodes.

Keywords: financial crises; banks; financial policy and regulation; crisis management JEL Classification: G01; G21; G28; H12 (search for similar items in EconPapers)
Date: 2023-10
New Economics Papers: this item is included in nep-cba and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_807_23

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