The Economic Perspective of Bank Bankruptcy Law
FED Cleveland Conference on Resolving Insolvent Large and Complex Financial Institutions
50 Pages Posted: 26 Apr 2011 Last revised: 6 Oct 2011
There are 2 versions of this paper
The Economic Perspective of Bank Bankruptcy Law
The Economic Perspective of Bank Bankruptcy Law
Date Written: August 15, 2011
Abstract
This paper argues that a special bank bankruptcy regime is desirable for the efficient restructuring and/or liquidation of distressed banks. We first explore the principal features of corporate bankruptcy law. Next, we examine the specific characteristics that distinguish banks from other corporations, and argue that these features are largely neglected in corporate bankruptcy law. Finally, we make recommendations for optimal closure and reorganization policies, which should allow regulators to better mitigate disruptions in the financial system and minimize the social costs of bank distress. We compare the U.S., UK, and German bank bankruptcy frameworks and describe the EU framework for cross-border bank bankruptcy. We support our recommendations with a discussion of the Lehman Brothers and Fortis bank failures.
Keywords: Bank Bankruptcy Law, Corporate Bankruptcy Law, Bankruptcy Regimes, Bank Failures, Optimal Resolution
JEL Classification: G21, G28, G33
Suggested Citation: Suggested Citation
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