Financial Restructuring and Resolution of Banks
Jean-Edouard Colliard () and
No 1272, HEC Research Papers Series from HEC Paris
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)
New Economics Papers: this item is included in nep-cfn and nep-gth
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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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