Bank Resolution Costs, Depositor Preference, and Asset Encumbrance

Daniel Hardy

No 2013/172, IMF Working Papers from International Monetary Fund

Abstract: Depositor preference and collateralization of borrowing may reduce the cost of settling the conflicts among creditors that arises in case of resolution or bankruptcy. This net benefit, which may be capitalized into the value of the bank rather than affect creditors’ expected returns, should result in lower overall funding costs and thus a lower probability of distress despite increasing encumbrance of the bank’s balance sheet. The benefit is maximized when resolution is initiated early enough for preferred depositors to remain fully protected.

Keywords: WP; interest rate; Bankruptcy costs; bank resolution; depositor preference; asset encumbrance; bankruptcy cost; bank resolution procedure; borrowing bank; rate of return; net payoff; conflict cost; Collateral; Legal support in revenue administration; Deposit insurance; Global (search for similar items in EconPapers)
Pages: 30
Date: 2013-07-18
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Citations: View citations in EconPapers (11)

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