Optimal Forbearance of Bank Resolution

Linda Schilling

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyzes a regulator's optimal strategic delay of resolving banks when the regulator's announcement of the intervention delay endogenously affects the depositors' run-propensity. Given intervention, the regulator either liquidates the remaining illiquid assets, or continues managing the assets (suspension intervention) at a reduced skill level. In either case, I show, the depositors may react to more conservative policy by preempting the regulator: The depositors run on the bank more often ex ante if the regulator tolerates fewer withdrawals until intervention. A policy of never intervening can leave the bank more stable than a conservative policy that tolerates few withdrawals.

Keywords: Bank resolution; intervention delay; global games; suspension of convertibility; bank run (search for similar items in EconPapers)
JEL-codes: D82 E61 G2 G21 G28 G3 G33 G38 (search for similar items in EconPapers)
Date: 2017-12-13
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https://mpra.ub.uni-muenchen.de/112409/1/MPRA_paper_112409.pdf original version (application/pdf)

Related works:
Working Paper: Optimal Forbearance of Bank Resolution (2019)
Working Paper: Optimal forbearance of bank resolution (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:112409

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