Bank Resolution Costs, Depositor Preference, and Asset Encumbrance

July 18, 2013

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Format: Chicago

Daniel C Hardy. Bank Resolution Costs, Depositor Preference, and Asset Encumbrance, (USA: International Monetary Fund, 2013) 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

Depositor preference and collateralization of borrowing may reduce the cost of settling the conflicts among creditors that arises in case of resolution or bankruptcy. This net benefit, which may be capitalized into the value of the bank rather than affect creditors’ expected returns, should result in lower overall funding costs and thus a lower probability of distress despite increasing encumbrance of the bank’s balance sheet. The benefit is maximized when resolution is initiated early enough for preferred depositors to remain fully protected.

Subject: Bank resolution, Banking, Collateral, Deposit insurance, Financial crises, Financial institutions, Legal support in revenue administration, Revenue administration

Keywords: Asset encumbrance, Bank resolution, Bank resolution procedure, Bankruptcy cost, Bankruptcy costs, Borrowing bank, Collateral, Conflict cost, Deposit insurance, Depositor preference, Global, Interest rate, Legal support in revenue administration, Net payoff, Rate of return, WP

Publication Details

Pages:

30
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2013/172
Stock No:

WPIEA2013172
ISBN:

9781484354100
ISSN:

1018-5941

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