Recovery Determinants of Distressed Banks: Regulators, Market Discipline, or the Environment?

Michael Koetter, Tigran Poghosyan and Thomas Kick

No 2010/027, IMF Working Papers from International Monetary Fund

Abstract: Based on detailed regulatory intervention data among German banks during 1994-2008, we test if supervisory measures affect the likelihood and the timing of bank recovery. Severe regulatory measures increase both the likelihood of recovery and its duration while weak measures are insignificant. With the benefit of hindsight, we exclude banks that eventually exit the market due to restructuring mergers. Our results remain intact, thus providing no evidence of "bad" bank selection for intervention purposes on the side of regulators. More transparent publication requirements of public incorporation that indicate more exposure to market discipline are barely or not at all significant. Increasing earnings and cleaning credit portfolios are consistently of importance to increase recovery likelihood, whereas earnings growth accelerates the timing of recovery. Macroeconomic conditions also matter for bank recovery. Hence, concerted micro- and macro-prudential policies are key to facilitate distressed bank recovery.

Keywords: WP; distressed bank; bank recovery; joint stock; support bank; troubled bank; Bank distress; capital support; regulation; recovery; capital injection; savings bank; core business; shows bank; Bank resolution; Auditing; Loans; Special purpose vehicle; Stocks; Global; Europe (search for similar items in EconPapers)
Pages: 29
Date: 2010-01-01
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Citations: View citations in EconPapers (8)

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Working Paper: Recovery determinants of distressed banks: Regulators, market discipline, or the environment? (2010)
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