Discussion Paper Details

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Title: Cross-Border Resolution of Global Banks: Bail in under Single Point of Entry versus Multiple Points of Entry

Author(s): Ester Faia and Beatrice Weder

Publication Date: March 2016

Keyword(s): financial retrenchment, financial spillover, global financial architecture, recovery and resolution planing, single point of entry and strategic regulatory interaction

Programme Area(s): Financial Economics and International Macroeconomics and Finance

Abstract: Cross-border resolution regimes are at the frontier of the international financial architecture reform. Bail-in resolution for global groups is now designed under two distinct regimes, SPE (Single Point of Entry) and MPE (Multiple Points of Entry). No model rationalized their welfare consequences. We examine cooperation versus non-cooperation in a model with strategically optimizing authorities and banks. Welfare losses in each regime depend on the degree of banks? liabilities home bias. SPE cooperative generally minimizes losses since authorities internalize cross-country spillovers, unless groups are highly decentralized. SPE may have unintended consequences: under cooperation it increases financial re-trenchment in previously segmented markets (by the same token it stimulates integration in well integrated markets). Under noncooperation subsidiarization emerges as an endogenous outcome. High capital requirements by acting as discipline devise reduce losses and blur the difference between regimes.

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Bibliographic Reference

Faia, E and Weder, B. 2016. 'Cross-Border Resolution of Global Banks: Bail in under Single Point of Entry versus Multiple Points of Entry'. London, Centre for Economic Policy Research.