Working Paper: CEPR ID: DP16192
Authors: Albert Banalestanol; Julian Kolm; Gyngyi Lrnth
Abstract: We study how bank resolution regimes affect investment. Banking groups create financing synergies by transferring excess financing capacity across units and lowering bankers' agency rents. Single-point-of-entry (SPOE) resolution mutualizes losses, which permits ex-post efficient continuation of weaker units following negative shocks, but can prevent optimal investment ex-ante. Multiple-point-of-entry (MPOE) resolution does not mutualize losses, which forces weaker units to shut down following negative shocks, but can foster ex-ante investment. MPOE resolution is more efficient when stronger units' financial excess capacity is small, weak units' financing deficits are large, and units' synergies are low or units face different risks.
Keywords: Complex Banking Groups; Resolution Regimes; Restructuring
JEL Codes: L51; F23; G21; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| SPOE (Y60) | continuation of weaker units after negative shocks (E32) |
| SPOE (Y60) | inefficient investment decisions (ex ante) (G11) |
| MPOE (L32) | shutdown of weaker units after negative shocks (G33) |
| MPOE (L32) | efficient investment decisions (ex ante) (G11) |
| MPOE (L32) | overall financing capacity of banking groups (G32) |
| MPOE (L32) | complex financing structures that incentivize monitoring of weaker units (G32) |
| MPOE (L32) | less likely to curtail investments during crises (G31) |
| financial excess capacity of stronger units is small (D24) | MPOE is more efficient (D61) |
| weak units face significant financing deficits (G32) | MPOE is more efficient (D61) |