Author(s):
Thorsten Beck, Deyan Radev, Isabel Schnabel
Date:
May 2020
Abstract:
We assess the ability of bank resolution frameworks to deal with systemic banking fragility. Using a novel and detailed database on bank resolution regimes in 22 member countries of the Financial Stability Board, we show that systemic risk, as measured by △CoVaR, increases more for banks in countries with more comprehensive bank resolution frameworks after negative system-wide shocks, such as Lehman Brothers’ default, while it decreases more after positive system-wide shocks, such as Mario Draghi’s “whatever it takes” speech. These results suggest that more comprehensive bank resolution may exacerbate the effect of system-wide shocks and should not be solely relied on in cases of systemic distress.
Link:
CEPR Discussion Paper: Bank Resolution Regimes and Systemic Risk