DP13032 Bank Resolution and the Structure of Global Banks

Author(s): Patrick Bolton, Martin Oehmke
Publication Date: July 2018
Keyword(s): bank resolution, single point of entry
JEL(s): G01, G18, G21, G33
Programme Areas: Financial Economics, International Macroeconomics and Finance
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=13032

We study the resolution of global banks by national regulators. Single-point-of-entry (SPOE) resolution, where loss-absorbing capital is shared across jurisdictions, isefficient but may not be implementable. First, when expected transfers across jurisdictions are too asymmetric, national regulators fail to set up SPOE resolution ex ante. Second, when required ex-post transfers are too large, national regulators 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 analysis highlights a fundamental link between efficient bank resolution and the operational structures and risks of global banks.