Bank Resolution, Deposit Insurance, and Fragility

Alkis Georgiadis-Harris () and Maxi Guennewig ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: Since the Great Financial Crisis, the share of deposits—both insured and uninsured—in bank liabilities has increased substantially. In this paper, we document this fact for the largest US banks. We show that it can be theoretically explained by the introduction of resolution powers, i.e. the ability to impose losses on bank shareholders and creditors. In such a world, banks issue deposits in order to channel resources towards uninsured depositors, imposing losses on insured depositors and forcing the government to conduct bailouts. Our model suggests that resolution and deposit insurance must be complemented by equity or long-term debt requirements.

Keywords: Bank Resolution; Deposit Insurance; and Fragility (search for similar items in EconPapers)
JEL-codes: G18 G21 G32 (search for similar items in EconPapers)
Pages: 50
Date: 2023-12
New Economics Papers: this item is included in nep-ban, nep-cba and nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2023_477

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