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Recovery determinants of distressed banks: Regulators, market discipline, or the environment?

Thomas Kick, Michael Koetter and Tigran Poghosyan

No 2010,02, Discussion Paper Series 2: Banking and Financial Studies from Deutsche Bundesbank

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. Results seem not to be driven by regulators directing measures to particularly bad banks. That is, our results remain intact when we exclude banks that eventually exit the market due to restructuring mergers or moratoria. 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: Bank distress; capital support; regulation; recovery (search for similar items in EconPapers)
JEL-codes: C41 G21 G28 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-eff and nep-reg
References: View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: Recovery Determinants of Distressed Banks: Regulators, Market Discipline, or the Environment? (2010) Downloads
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