Structure and Resolution in Banking: Are They Substitutes?

Alfred Duncan and Charles Nolan

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Can bank resolution replace ring-fencing? We develop a simple framework of expected systemic loss in which structural separability and resolvability interact. When either of two features holds-structure makes resolution work better, or it reduces the support needed during failure-resolution and ring-fencing become complements, not substitutes. Contrary to conventional wisdom, as the credibility of using resolution rises, the optimal degree of ring-fencing often increases; easing is warranted only in knife-edge cases where structure brings no marginal benefit. A private-social comparison predicts under-investment in structure and preparedness. In general, better resolvability strengthens the case for ring-fencing.

Keywords: ring-fencing; resolution regime; banking regulation (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Pages: 68 pages
Date: 2026-06
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2026-48

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