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Bank Resolution and the Structure of Global Banks

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We study the efficient resolution of global banks by national regulators. Single-point-of- entry (SPOE) resolution, where loss-absorbing capacity is shared across jurisdictions, is efficient, but may not be implementable. First, when expected transfers across jurisdictions are too asymmetric, national regulators fail to set up an efficient SPOE resolution regime ex ante. Second, when the required ex-post transfers across jurisdictions are too large, national regulators ring-fence local banking assets, instead of cooperating in a planned SPOE resolution. In this case, constrained efficient resolution is achieved through multiple-point-of-entry (MPOE) resolution, where some loss-absorbing capacity is pre-assigned to national holding companies in each jurisdiction. Our analysis highlights a complementarity between bank resolution and the organizational structure of global banks—the more decentralized a global bank’s operations, the greater the relative efficiency of MPOE resolution.

This talk is part of the Finance & Accounting Seminar Series series.

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