Resolution Design and Investment in Banking Groups

Albert Banal-Estanol, Lóránth, Gyöngyi and David Pothier

No 21038, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study how resolution regimes affect investment in banking groups with subsidiaries of varying financial strength. Centralized regimes that preserve the group structure enable ex post support for weaker units but may constrain ex ante investment. In contrast, decentralized regimes that resolve units separately may enhance ex ante investment but limit risk-sharing ex post. The relative efficiency of each approach depends on the group’s risk profile and profitability. Allowing both regimes to coexist improves efficiency relative to imposing a uniform regime across all groups. A single resolution authority may face a time-inconsistency problem in enforcing limits on ex post risk-sharing.

JEL-codes: F23 G21 G28 (search for similar items in EconPapers)
Date: 2026-01
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