Cross-border resolution of global banks

Ester Faia and Beatrice Weder di Mauro

No 88, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: Most recent regulations establish that resolution of global banking groups shall be done according to bail-in procedures and following a Single Point of Entry (SPE) as opposed to a Multiple Point of Entry (MPE) approach. The latter requires parent holding of global groups to put up front the equity capital needed to absorb losses possibly emerging in foreign subsidiaries-branches. No model rationalized so far such resolution regime. We build a model of optimal design of resolution regimes and compare three regimes: SPE with cooperative authorities, SPE with non-cooperative authorities and MPE (ring-fencing). We find that the costs for bondholders of bail-inable instruments is generally higher under noncooperative regimes and ring-fencing. We also find that in those cases banks have ex ante incentives to reduce their exposure in foreign assets. We also examine recent case studies that help us rationalize the model results.

Keywords: single point of entry; multiple point of entry; strategic interaction of regulators; financial spillover; financial retrenchment (search for similar items in EconPapers)
JEL-codes: F3 G18 (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-cba and nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Cross-Border Resolution of Global Banks (2015)
Working Paper: Cross-border resolution of global banks (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:88

DOI: 10.2139/ssrn.2572882

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