Optimal Bank Recovery

Author/Editor:

C. A. E. Goodhart ; Miguel A. Segoviano

Publication Date:

September 30, 2015

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

Banks’ living wills involve both recovery and resolution. Since it may not always be clear when recovery plans or actions should be triggered, there is a role for an objective metric to trigger recovery. We outline how such a metric could be constructed meeting criteria of (i) adequate loss absorption; (ii) distinguishing between weak and sound banks; (iii) little susceptibility to manipulation; (iv) timeliness; (v) scalable from the individual bank to the system. We show how this would have worked in the U.K., during 2007–11. This approach has the added advantage that it could be extended to encompass a whole ladder of sanctions of increasing severity as capital erodes.

Series:

Working Paper No. 2015/217

Subject:

Asset valuation Bank solvency Banking Financial institutions Financial sector policy and analysis Financial sector stability Loans Stocks Systemic risk

English

Publication Date:

September 30, 2015

ISBN/ISSN:

9781513584263/1018-5941

Stock No:

WPIEA2015217

Pages:

41

Please address any questions about this title to publications@imf.org