Recovery Determinants of Distressed Banks: Regulators, Market Discipline, or the Environment?

By Michael Koetter, Tigran Poghosyan, Thomas Kick

January 1, 2010

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Michael Koetter, Tigran Poghosyan, and Thomas Kick. Recovery Determinants of Distressed Banks: Regulators, Market Discipline, or the Environment?, (USA: International Monetary Fund, 2010) accessed November 21, 2024

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

Based on detailed regulatory intervention data among German banks during 1994-2008, we test if supervisory measures affect the likelihood and the timing of bank recovery. Severe regulatory measures increase both the likelihood of recovery and its duration while weak measures are insignificant. With the benefit of hindsight, we exclude banks that eventually exit the market due to restructuring mergers. Our results remain intact, thus providing no evidence of "bad" bank selection for intervention purposes on the side of regulators. More transparent publication requirements of public incorporation that indicate more exposure to market discipline are barely or not at all significant. Increasing earnings and cleaning credit portfolios are consistently of importance to increase recovery likelihood, whereas earnings growth accelerates the timing of recovery. Macroeconomic conditions also matter for bank recovery. Hence, concerted micro- and macro-prudential policies are key to facilitate distressed bank recovery.

Subject: Asset and liability management, Auditing, Bank resolution, Banking, Deposit insurance, Financial crises, Financial institutions, Loans, Public financial management (PFM), Special purpose vehicle, Stocks

Keywords: Auditing, Bank distress, Bank recovery, Bank resolution, Capital injection, Capital support, Core business, Distressed bank, Europe, Global, Joint stock, Loans, Recovery, Regulation, Savings bank, Shows bank, Special purpose vehicle, Stocks, Support bank, Troubled bank, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/027
Stock No:

WPIEA2010027
ISBN:

9781451962499
ISSN:

1018-5941

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