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

48 Pages Posted: 8 Jun 2016

See all articles by Thomas K. Kick

Thomas K. Kick

Deutsche Bundesbank

Michael Koetter

Halle Institute for Economic Research

Tigran Poghosyan

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: 2010

Abstract

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. Results seem not to be driven by regulators directing measures to particularly bad banks. That is, our results remain intact when we exclude banks that eventually exit the market due to restructuring mergers or moratoria. 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.

Keywords: Bank distress, capital support, regulation, recovery

JEL Classification: G28, C41, G21

Suggested Citation

Kick, Thomas K. and Koetter, Michael and Poghosyan, Tigran, Recovery Determinants of Distressed Banks: Regulators, Market Discipline, or the Environment? (2010). Bundesbank Series 2 Discussion Paper No. 2010,02, Available at SSRN: https://ssrn.com/abstract=2794039 or http://dx.doi.org/10.2139/ssrn.2794039

Thomas K. Kick (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Michael Koetter

Halle Institute for Economic Research ( email )

P.O. Box 11 03 61
Kleine Maerkerstrasse 8
D-06017 Halle, 06108
Germany

HOME PAGE: http://www.iwh-halle.de/en/about-the-iwh/people/detail/michael-koetter/

Tigran Poghosyan

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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