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  1. 2 Bezpieczny Bank

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  1. 2 Korte J.

  2. 1 Ignatowski M.

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  1. 2 2014

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Why Closing Failed Banks Helps the Real Economy

100%
Korte J.
Bezpieczny Bank
|
2014
|
issue 2(55)
85-90
EN
It is widely agreed that banks play a growth-enhancing role for the real economy. However, distorted incentives around bank insolvency may corrupt banks' credit allocation and monitoring - ultimately leading to suboptimal real economic performance. The outcomes of such distorted incentives are suboptimal credit allocation and monitoring - which is felt in the real economy: Not the projects and firms that need (and deserve) credit most on grounds of economic viability and profitability, but those that have particular risk- or asset-profiles are now favored by incentive-corrupted financial intermediaries. The results strongly advocate putting bank insolvency and resolution regimes center stage in discussions towards reforming bank regulation. In the European context, this calls for particular emphasis on the common resolution framework and the Single Resolution Mechanism as a vital part of the European Banking Union.
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Changing Bank Resolution Regimes - the U.S. Case

63%
Ignatowski M., Korte J.
Bezpieczny Bank
|
2014
|
issue 2(55)
91-99
EN
Existing resolution tools proved mostly inappropriate when governments were confronted with seriously distressed banks during the global financial crisis and the subsequent European sovereign debt crisis. Bank regulators and legislators have realized the importance of effective and appropriate bank resolution mechanisms and have brought into force significant changes to resolution regimes in an effort to prevent future crises. This article deals with the question whether resolution mechanisms can discipline banks. We revisit economic theory to determine the requirements for resolution mechanisms to induce incentives for prudent bank behavior and apply this concept in order to examine one particular change in resolution regulation, the introduction of the Orderly Liquidation Authority. Taken together, we find that the Orderly Liquidation Authority can be interpreted as a significant improvement to the U.S. resolution regime.
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