Working Paper: CEPR ID: DP14724
Authors: Thorsten Beck; Deyan Radev; Isabel Schnabel
Abstract: We assess the ability of bank resolution frameworks to deal with systemic banking fragility. Using a novel and detailed database on bank resolution regimes in 22 member countries of the Financial Stability Board, we show that systemic risk, as measured by â–³CoVaR, increases more for banks in countries with more comprehensive bank resolution frameworks after negative system-wide shocks, such as Lehman Brothers' default, while it decreases more after positive system-wide shocks, such as Mario Draghi's "whatever it takes'' speech. These results suggest that more comprehensive bank resolution may exacerbate the effect of system-wide shocks and should not be solely relied on in cases of systemic distress.
Keywords: bank resolution regimes; bail-in; systemic risk
JEL Codes: G01; G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Comprehensive bank resolution frameworks (G28) | Systemic risk contributions (F65) |
| Negative systemwide shocks (F69) | Systemic risk contributions (F65) |
| Positive systemwide shocks (E39) | Systemic risk contributions (F65) |
| Comprehensive bank resolution frameworks (G28) | Amplification of systemic shocks (E32) |
| Bail-in framework and powers of resolution authorities (G28) | Amplification of systemic shocks (E32) |
| Comprehensive bank resolution frameworks (G28) | Financial stability (G28) |