IMF Working Papers

Optimal Bank Recovery

By C. A. E. Goodhart, Miguel A. Segoviano

September 30, 2015

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C. A. E. Goodhart, and Miguel A. Segoviano Optimal Bank Recovery, (USA: International Monetary Fund, 2015) accessed November 22, 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

Banks’ living wills involve both recovery and resolution. Since it may not always be clear when recovery plans or actions should be triggered, there is a role for an objective metric to trigger recovery. We outline how such a metric could be constructed meeting criteria of (i) adequate loss absorption; (ii) distinguishing between weak and sound banks; (iii) little susceptibility to manipulation; (iv) timeliness; (v) scalable from the individual bank to the system. We show how this would have worked in the U.K., during 2007–11. This approach has the added advantage that it could be extended to encompass a whole ladder of sanctions of increasing severity as capital erodes.

Subject: Asset valuation, Bank solvency, Banking, Financial institutions, Financial sector policy and analysis, Financial sector stability, Loans, Stocks, Systemic risk

Keywords: Bank loss, Bank Recovery, Bank Resolution, Bank solvency, Banks' equity, Banks RBS, Distress probability, Financial sector stability, Global, Loan Default, Loans, Log asset return, Loss Absorption, Loss absorption buffer, Loss distribution, Market cap, Metrics for Triggers, Probability of Distress, Stocks, Systemic risk, WP

Publication Details

  • Pages:

    41

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2015/217

  • Stock No:

    WPIEA2015217

  • ISBN:

    9781513584263

  • ISSN:

    1018-5941

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