A cross-country analysis of bank bankruptcy regimes

Matej Marinč and Vasja Rant

Journal of Financial Stability, 2014, vol. 13, issue C, 134-150

Abstract: This article analyzes bank bankruptcy regimes across 142 countries. By employing factor analysis, we identify five main dimensions of bank bankruptcy frameworks: (1) difficulty of forbearance and ease of court appeal, (2) availability of supervisory tools, (3) court involvement, (4) supervisory powers with respect to managers, and (5) supervisory powers with respect to shareholders and preinsolvency phase. We use cluster analysis to identify and group countries according to two prevalent types of bank bankruptcy frameworks: a court-led and administrative bank bankruptcy regime. Administrative bank bankruptcy regimes are associated with less court involvement in the resolution process, less likely forbearance, a higher possibility of court appeal, greater availability of supervisory tools, weaker supervisory powers with respect to managers and stronger supervisory powers with respect to shareholders, and a preinsolvency phase as opposed to the court-led bank bankruptcy regimes. Administrative bank bankruptcy regimes are also associated with fewer creditor rights, less government effectiveness, and lower institutional quality than court-led bank bankruptcy regimes. We find some evidence that the type and main dimensions of a bank bankruptcy regime are related to the occurrence and severity of the global financial crisis.

Keywords: Bank bankruptcy law; Bank insolvency regimes; Bank failures; Optimal resolution; Financial crisis (search for similar items in EconPapers)
JEL-codes: E58 G20 G21 G28 G33 K23 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:13:y:2014:i:c:p:134-150

DOI: 10.1016/j.jfs.2014.06.004

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