Financial Restructuring and Resolution of Banks

Jean-Edouard Colliard and Denis Gromb

No 1272, HEC Research Papers Series from HEC Paris

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.

Keywords: Bank resolution; bail-out; bail-in; debt restructuring (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2018-05-02
New Economics Papers: this item is included in nep-cfn and nep-gth
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Citations: View citations in EconPapers (15)

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Related works:
Working Paper: Financial Restructuring and Resolution of Banks (2024)
Working Paper: Financial Restructuring and Resolution of Banks (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ebg:heccah:1272

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