A Theory of Bank Resolution Political Economics and ：一个理论的银行解决政治经济学.ppt

A Theory of Bank Resolution: Political Economics and Technological Change Robert DeYoung (University of Kansas) and Jack Reidhill (FDIC) Aim of Paper Presents a novel theoretical framework to explain the features of bank resolution Focuses on the trade-off between LIQUIDITY and MARKET DISCIPLINE Explains how new resolution technologies + other institutional / economic features interplay to alter liquidity and market discipline trade-offs Also emphasises how depositor + borrower liquidity are associated with different resolution approaches + are correlated The Model One period framework Exogenous bank insolvency One authority with responsibility for resolution Resolution strategy assumed to provide a combination of liquidity and market discipline that maximizes the resolution authorities welfare (not necessarily the same as social welfare) Resolution constrained by technological factors + governmental factors (both broadly defined) Graphical exposition The Model – Liquidity versus Discipline The Model – Liquidity versus Discipline – Other Scenarios Figure 2 – Resolution technology improves, shifts T to right, improves welfare (for RA) Figure 3 – New resolution technology (Bridge bank) improves utility for RA that favours liquidity over market discipline (although relative to DP moral hazard incentives have increased) Figure 4 – Big bank failures – imposing discipline – liquidity price of discipline increases. T pivots to left Figure 5 – Government constraints on liquidity support for big bank failures, T pivots to left, liquidity constraint – RA utility lower than other outcomes but social welfare still greater than full bailout Contribution Provides a novel and illuminating theoretical insight into the trade-off between market discipline and liquidity provision in the case of bank resolution Linked neatly to the evolution of FDIC resolution practices from 1933-1992, with interesting cases of various US bank bailouts (in Annex) Raises questions about b