A Coasean Approach to Bank Resolution Policy in the Eurozone

Gregory Connor and Brian O'Kelly
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Brian O'Kelly: Dublin city University

Economics Department Working Paper Series from Department of Economics, National University of Ireland - Maynooth

Abstract: The Eurozone needs a bank resolution regime that can work across seventeen independent nations of diverse sizes with varying levels of financial development, limited fiscal co-responsibility, and with systemic instability induced by quick and low-cost deposit transfers across borders. We advocate a Coasean approach to bank resolution policy in the Eurozone, which emphasises clear and consistent contracts and makes explicit the public ownership of the externality costs of bank distress. A variety of resolution mechanisms are compared including bank debt holder bail-in, prompt corrective action, and contingent convertible bonds. We argue that the “dilute-in” of bank debt holders via contingent convertibility provides a clearer and simpler Coasean bargain for the Eurozone than the more conventional alternatives of debt holder bail-in or prompt corrective action.

Pages: 16 pages
Date: 2012
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Citations: View citations in EconPapers (3)

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Working Paper: A Coasean Approach to Bank Resolution Policy in the Eurozone (2012)
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