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Autor
Wihlborg Clas (School of Economics and Commercial Law, Gothenburg; Stern School of Business, New York University, New York), Kowalski Tadeusz (Poznań University of Economics, Poland)
Tytuł
Allow Banks to Fail
Źródło
Raporty. Opracowania. Referaty / Akademia Ekonomiczna w Poznaniu, 1999, nr 10, s. 402-419, bibliogr. 17 poz.
Tytuł własny numeru
Proceedings of the Ace/Phare Conference on Building Financial Institutions in Transition Economies: Poznań, Poland, 14-15 May, 1999
Słowa kluczowe
Gwarancja, Niewypłacalność, Ryzyko finansowe, Upadłość banku
Guarantee, Insolvency, Financial risk, Bank bankruptcy
Uwagi
summ.
Abstrakt
Explicit and implicit guarantees of banks' creditors and shareholders set the competitive mechanism out of play in several ways. There is widespread agreement among economists that qarantees of depositors make the banking system crisis-prone, and that supervisory activities do t easily correct this problem. Only in the USA is the deposit insurance of such coverage that it is likely to be a strong ;incentive for bank-runs. Authorities in most other countries with partial deposit insurance (the J) and no explicit insurance offer implicit guarantees by not allowing banks to fail and be liquidated. By bailing out banks, authorities actually offer a broader guarantee than a complete :posit insurance. Even shareholders obtain a "safety net" when bail - outs are expected. When insolvent banks are not allowed to "exit", inefficient financial institutions survive id hinder the expansion of the well - managed ones. In particular, the reward to skillful project id risk evaluation is weak. Is it possible to restore the competitive mechanism in the banking industry without eating unacceptable risks of bank - runs and "contagion" through the settlement systems among inks? The competitive mechanism requires the "exit" of inefficient firms on the banking industry as in other industries. Efficiency also requires that the expanding banks are those with i advantage in the evaluation and pricing of risk. These considerations imply both that banks should be allowed to fail and that liability holders including depositors should be made "risk - concious." At the same time this consciousness must not be so strong that one bank's failure causes a run on others. A regime for dealing with problem banks must also take into account the political realit that governments' fear of contagion may be so strong that they bail - out banks in order to remove any risk of contagion. Thus, in order to be credible the regime must enable banks to fai without inducing authorities to intervene for the protection of any creditors. Such credibility ca probably be achieved only if the risk facing large groups of depositors and liability holders is very smali. The risk must be smali both in terms of probability that they will face losses, and ir terms of the magnitude of the potential losses. The risk must not be removed completely, however. We will suggest that the solution to the dilemma outlined above lies in the specificatior of insolvency procedures for banks. In fact, we argue that the appropriate insolvency procedur* are those that would be induced by the competitive mechanism, if governments credibly would be able to take a complete hands - off attitude. Since such an attitude cannot be expected, the procedures must be specified in law or regulation. Section 2 describes how banks with implicit or explicit guarantees tend to be crisis - prone, and how insolvency procedures for both fmancial and non-financial institutions contribi to a "stop - Go" banking system in some countries. Principles and proposals for dealing with problem banks are discussed in Section 3. Finally, in Section 4, insolvency procedures for ban are discussed in more detail. (original abstract)
Dostępne w
Biblioteka Szkoły Głównej Handlowej
Biblioteka Główna Uniwersytetu Ekonomicznego w Poznaniu
Bibliografia
Pokaż
  1. Bernard, V.L.. R.C. Merton, and K.G. Palepu(1995) " Mark-to-Market Accounting for Banks and Thrifts: Lessons from the Danish Experience" Journal of Accounting Research, Spring, ppl- Boot,A. and A.Thakor(199).
  2. Calomiris,C.(1997),,The Post-Modern Bank Safety Net",American Enterprise Institute, Washington D.C.
  3. Caprio,G. And D.Klingebiel(1996),"Bank Insolvencies", World Bank Policy Research working Paper 1620.
  4. Dietrich, J.K.(1992)"Bank Capital and Risky Lending; Alternative Return Maximizing Strategies", mimeo, USC Dowd, K.(1993).
  5. Eliasson, G.and C. Wihlborg(1998), "Electronic Money-New Markets for Banks, Markets for New Banks, or Markets for Non-Banks? Gothenburg Studies in Financial Economics, No European Shadow Financial Regulatory Committee( 1998a),Statement Nol,''Dealing with Problem Banks in Europe" Royal Institute of International Affairs, London, June 22.
  6. Statement No2,"EMU, The ECB, and Financial Supervision" Center for Financial Studies, Frankfurt, Oct. 19.
  7. Kane, E.J.(1998)"Understanding and Preventing Bank Crises" in Caprio, G., W.C. Hunter, G.G.
  8. Kaufman, and D.M. Leipziger(eds) Preventing Bank Crises: Lessons from Recent Global Bank Failures, EDI Development Studies.
  9. Kaufman, G. G. And R.S. Kroszner (1997) in Safe and Sound Financial Systems, Rojas-Suarez, L.(ed).
  10. Lannoo, K.(1998)" From 1992 to EMU: The Implications for Prudential Supervision" CEPS Research Report no 23.
  11. Lastra, R.(1998) "Lender of Last Resort" Center for Commercial Law Studies, London University. Llewelyn (1998).
  12. Mayes, D.G.(1998) "Improving Banking Supervision" Bank of Finland Discussion Papers, 23/98.
  13. Mayes, D.G., and J. Vesala(1998) "On The Problems of Home Country Control" Bank of Finland Discussion Papers 20/98 Molier, M. and N.C. Nielsen(199 ).
  14. Petri, T. And B. Ely(1998) "A Way Out of Bad Banking" the Financial Times, March 16.
  15. Prati,A. and G. Schinasi(1998) " Will The European Central Bank Be The Lender of Last Resort in The EMU? Presented at SUERF-conference on "The Euro-A Challenge and Opportunity for Financial Markets" Frankfurt, Oct. 14-17, 1998.
  16. Rajan, R.G.(1997) "The Past and Future of Commercial Banking viewed from an Incomplete Contract Lens" Presented at conference on Comparative Financial Systems, The Federal Reserve Bank of Cleveland, November.
  17. Wihlborg, C. (1997) "The Role of Enabling and Mandatory Company Law for Financial System Efficiency" Gothenburg Studies in Financial Economics.
Cytowane przez
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ISSN
1429-8848
Język
eng
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