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Can the 'single point of entry' strategy be used to recapitalize a failing bank?

Author

Listed:
  • Peter J. Wallison

    (American Enterprise Institute)

  • Paul H. Kupiec

    (American Enterprise Institute)

Abstract
We analyze the ability of the "Single Point of Entry" strategy (SPOE) to resolve large banks without financial market disruption. We identify several legal and financial impediments that could prevent SPOE's use. In particular, Title II of the Dodd-Frank Act was conceived by Congress as an alternative to bankruptcy liquidation, not a mechanism for recapitalizing financial institutions through SPOE or otherwise, especially banks. The failure of the largest banks will not generally endanger the solvency of parent BHCs, preventing the secretary of the Treasury from using SPOE for these major institutions. However, other large BHCs would be bankrupt if their subsidiary bank failed, and here SPOE expands the government safety net and reinforces TBTF. On balance, the evidence suggests that SPOE does not solve TBTF or provide a way to recapitalize a failing bank.

Suggested Citation

  • Peter J. Wallison & Paul H. Kupiec, 2014. "Can the 'single point of entry' strategy be used to recapitalize a failing bank?," AEI Economics Working Papers 819414, American Enterprise Institute.
    • Handle: RePEc:aei:rpaper:819414
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    File URL: http://www.aei.org/publication/can-single-point-entry-strategy-used-recapitalize-failing-bank
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    Cited by:

    1. José Alejandro Fernández Fernández, 2020. "Considerations of the SPE and MPE resolution," Journal of Banking Regulation, Palgrave Macmillan, vol. 21(3), pages 278-287, September.

    More about this item

    Keywords

    Dodd-Frank Act; banking;

    JEL classification:

    • A - General Economics and Teaching

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