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The insufficiency of traditional safety nets: what bank resolution fund for Europe?

Author

Listed:
  • Maria J. Nieto
  • Gillian G. Garcia
Abstract
Purpose - The purpose of this paper is to analyze the rationale for Bank Recovery and Resolution Funds (BRRFs) in the context of the present European Union's (EU) decentralized safety net. Design/methodology/approach - The paper makes some reflections on the governance aspects of BRRFs that would require minimum harmonization in the EU, emphasizing that BRRFs are only one institutional component of financial institutions' effective and credible resolution regime. This paper focuses on depository institutions, but the rationale of BRRFs could be extended to other credit institutions. Findings - BRRFs contribute to shifting the government's trade‐off between bailing out and restructuring in favour of restructuring, to the extent that there is also an effective bank resolution legal framework. In turn, banks' contributions to BRRFs aim at discouraging their excess systemic risk creation, particularly through financial system leverage. Originality/value - The paper provides input in the current regulatory debate to develop new measures for the reform of the regulatory framework of financial services in the EU.

Suggested Citation

  • Maria J. Nieto & Gillian G. Garcia, 2012. "The insufficiency of traditional safety nets: what bank resolution fund for Europe?," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 20(2), pages 116-146, May.
    • Handle: RePEc:eme:jfrcpp:v:20:y:2012:i:2:p:116-146
    DOI: 10.1108/13581981211218261
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    References listed on IDEAS

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    1. Fabio Panetta & Thomas Faeh & Giuseppe Grande & Corrinne Ho & Michael R King & Aviram Levy & Federico M Signoretti & Marco Taboga & Andrea Zaghini, 2009. "An assessment of financial sector rescue programmes," BIS Papers, Bank for International Settlements, number 48.
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    8. Stolz, Stéphanie Marie & Wedow, Michael, 2010. "Extraordinary measures in extraordinary times: Public measures in support of the financial sector in the EU and the United States," Discussion Paper Series 1: Economic Studies 2010,13, Deutsche Bundesbank.
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    11. Gillian G.H. Garcia & Rosa M. Lastra & María J. Nieto, 2009. "Bankruptcy and reorganization procedures for cross‐border banks in the EU," Journal of Financial Regulation and Compliance, Emerald Group Publishing Limited, vol. 17(3), pages 240-276, July.
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    Cited by:

    1. A. Michael Andrews, 2014. "Effective resolution regimes for financial institutions in ASEAN+3," Chapters, in: Iwan J. Azis & Hyun S. Shin (ed.), Global Shock, Risks, and Asian Financial Reform, chapter 12, pages 464-509, Edward Elgar Publishing.
    2. Andy Mullineux, 2015. "Implications Of The Eurozone Crisis For Monetary Unions In Sub-Saharan Africa," The African Finance Journal, Africagrowth Institute, vol. 17(1), pages 21-40.
    3. Mark Wahrenburg, 2013. "Bad Banks — Good Bank Resolution?," Schmalenbach Journal of Business Research, Springer, vol. 65(67), pages 42-71, January.
    4. Mullineux, Andy, 2014. "Banking for the public good," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 87-94.
    5. Douglas da Rosa München & Herbert Kimura, 2020. "Regulatory Banking Leverage: what do you know?," Working Papers Series 540, Central Bank of Brazil, Research Department.

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