Working Paper: CEPR ID: DP13032
Authors: Patrick Bolton; Martin Oehmke
Abstract: We study the resolution of global banks by national regulators. Single-point-of-entry (SPOE) resolution,where loss-absorbing capital is shared across jurisdictions, is efficient but may not be implementable.First, when expected transfers across jurisdictions are too asymmetric, national regulatorsfail to set up SPOE resolution ex ante. Second, when required ex-post transfers are too large, nationalregulators ring-fence assets instead of cooperating in SPOE resolution. In this case, a multiple-point-of-entry (MPOE) resolution, where loss-absorbing capital is pre-assigned, is more robust. Our analysishighlights a fundamental link between efficient bank resolution and the operational structures and risksof global banks.
Keywords: bank resolution; single point of entry
JEL Codes: G01; G18; G21; G33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| SPOE resolution is efficient (C69) | cooperation and resource sharing among national regulators (L59) |
| cooperation and resource sharing among national regulators (L59) | lower required loss-absorbing capital (G33) |
| expected cross-jurisdictional transfers are symmetric (H73) | regulators are more likely to agree to an SPOE regime (G18) |
| asymmetric expected transfers (F16) | national regulators may prefer MPOE resolution (L59) |
| operational complementarities across jurisdictions (H73) | enhance feasibility of SPOE (F55) |
| large required transfers (H87) | regulators will opt for MPOE resolution (L59) |
| choice of resolution regime (G33) | significantly affects incentives of local operating subsidiaries (F23) |
| SPOE (Y60) | potentially dampening incentives of local operating subsidiaries (F23) |
| MPOE (L32) | stronger incentives for local subsidiaries to generate cash flows (F23) |