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1 – 10 of 115This paper aims to consider whether it is plausible to resolve troubled systemically important cross-border banks by dividing them so that the component national authorities can…
Abstract
Purpose
This paper aims to consider whether it is plausible to resolve troubled systemically important cross-border banks by dividing them so that the component national authorities can resolve the parts in their jurisdiction separately according to their own priorities.
Design/methodology/approach
The example of New Zealand is used. This country has chosen just such a route in its Open Bank Resolution (OBR) policy. The difficulties and advantages of this route to resolution are analyzed.
Findings
The paper concludes that the New Zealand route is plausible for systemic subsidiaries, providing there is deposit insurance. The minimum cost route is likely to be one where the home authority takes responsibility for the whole group and keeps all systemic operations running. It remains to be seen what the new EU-level proposals could achieve.
Research limitations/implications
OBR is as yet fortunately untried although there are some examples from a smaller scheme in Denmark.
Practical implications
These findings have important implications for financial regulators round the world but especially in the EU as it seeks to find a similar approach in the Recovery and Resolution Directive.
Originality/value
This topic has not been covered by others and will add ideas of practical value to the debate. One of the major problems addressed by the Basel Committee in its approach to supervision and regulation of cross-border banks is to come up with arrangements that allow the network of national authorities to handle problems in a large cross-border bank quickly, efficiently and preferably pre-emptively without recourse simply to a major taxpayer bailout.
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Jacopo Carmassi and Richard John Herring
The purpose of this paper is to analyze whether and how “living wills” and public disclosure of such resolution plans contribute to market discipline and the effective resolution…
Abstract
Purpose
The purpose of this paper is to analyze whether and how “living wills” and public disclosure of such resolution plans contribute to market discipline and the effective resolution of too big and too complex to fail banks.
Design/methodology/approach
The disorderly collapse of Lehman Brothers is analyzed. Large, systemically important banks are now required to prepare resolution plans (living wills). In the USA, parts of the living wills must be disclosed to the public. The public component is analyzed with respect to contribution to market discipline and effective resolution of banks considered too big and complex to fail. In a statistical analysis of the publicly available section of living wills, this information is contrasted with legislative requirements.
Findings
The analysis of public disclosures of resolution plans shows that they are insufficient to facilitate market discipline and, in some instances, fail to enhance public understanding of the financial institution and its business. When coupled with the uncertainty over how an internationally active financial institution will be resolved, the paper concludes that these reforms will do little to reduce market expectations that some financial firms are simply too big or too complex to fail.
Research limitations/implications
A very small data set and the necessity of cross-checking the authors' observations with all publicly available sources. The authors have also tried to infer a purpose for public disclosure of parts of resolution plans. The authorities are remarkably vague on the issue and so the authors have assumed they actually did have a specific intent that would strengthen the system.
Practical implications
The inference from the publicly available portion of living wills is that the authorities are a very long way from abolishing too-big-to-fail.
Originality/value
So far as the authors know, this is the first in-depth analysis of the information available in the public sections of living wills.
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To find the way to obtain the maximization of social welfare has been a focus of welfare economics. Pareto optimal conditions are usually considered a sufficient condition for the…
Abstract
To find the way to obtain the maximization of social welfare has been a focus of welfare economics. Pareto optimal conditions are usually considered a sufficient condition for the Welfare maximization, i.e., the first best solution. Under the mixed economy, however, it is almost impossible to reach this “Utopia” (pareto optimum) with institutional constraints such as monopoly and taxes. The second best solution then becomes the realistic and interesting problem few economists have paid attention to in the last two decades. In studying the second best theory, the following question arises: If a constraint, which prevents the satisfaction of at least one of the paretian conditons, is introduced into a general equilibrium system, which second best conditions depart from the corresponding paretian condition?
Barry E. Jones and David L. Edgerton
Revealed preference axioms provide a simple way of testing data from consumers or firms for consistency with optimizing behavior. The resulting non-parametric tests are very…
Abstract
Revealed preference axioms provide a simple way of testing data from consumers or firms for consistency with optimizing behavior. The resulting non-parametric tests are very attractive, since they do not require any ad hoc functional form assumptions. A weakness of such tests, however, is that they are non-stochastic. In this paper, we provide a detailed analysis of two non-parametric approaches that can be used to derive statistical tests for utility maximization, which account for random measurement errors in the observed data. These same approaches can also be used to derive tests for separability of the utility function.