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Default of Systemically Important Financial Intermediaries: Short-term Stability versus Incentive Compatibility?

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  • Andreas Dombret
  • André Ebner

Abstract

Financial integration and globalization have acted as a major stimulus in the development of large, internationally operating banks, which not only provide cross-border services but also have a local presence. While these banks are themselves drivers of economic integration, they can pose serious threats to financial stability. Their size, interconnectedness and importance as providers of specific services mean that financial institutions can be too-systemic-to-fail (TSTF). Since the entry and exit of market participants is a crucial feature of well-functioning markets, the absence of any credible possibility of failure leads to serious distortions. This analysis gives an overview of the TSTF problem and discusses the challenges to be faced in establishing credible resolution regimes.
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  • Andreas Dombret & André Ebner, 2013. "Default of Systemically Important Financial Intermediaries: Short-term Stability versus Incentive Compatibility?," German Economic Review, Verein für Socialpolitik, vol. 14(1), pages 15-30, February.
    • Handle: RePEc:bla:germec:v:14:y:2013:i:1:p:15-30
    DOI: 10.1111/geer.12002
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    Cited by:

    1. Dombret Andreas & Liebig Thilo & Stein Ingrid, 2014. "Trennbankensystem – ein Weg zu mehr Finanzstabilität in Deutschland?," Perspektiven der Wirtschaftspolitik, De Gruyter, vol. 15(1), pages 41-55, February.
    2. Remsperger, Hermann, 2013. "Überforderung statt Langeweile?," SAFE White Paper Series 3, Leibniz Institute for Financial Research SAFE.

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