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Bank restructuring in the EU: Which way to go?

Author

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  • Iwanicz-Drozdowska, Małgorzata
  • Smaga, Paweł
  • Witkowski, Bartosz

Abstract

We empirically analysed the costs of bank restructuring measures undertaken in the EU countries during recent global financial crisis under the state aid framework. With a unique dataset from over 80 bank case studies in 2008–2014, we modelled the determinants of bailout costs and ranked the cost of each tool applied. We have found that the most important determinant was level of capital adequacy, while the most cost-consuming tool—liquidation of a bank. Thus, our study provides implications on the selection of state aid tools and sheds a new light on their costs. Overall, we concluded that banks’ higher loss absorption capacity, strengthened supervision over small and medium-sized banks and restrictive approach to diagnose bank's problems may limit the costs of future rescue operations.

Suggested Citation

  • Iwanicz-Drozdowska, Małgorzata & Smaga, Paweł & Witkowski, Bartosz, 2016. "Bank restructuring in the EU: Which way to go?," Journal of Policy Modeling, Elsevier, vol. 38(3), pages 572-586.
  • Handle: RePEc:eee:jpolmo:v:38:y:2016:i:3:p:572-586
    DOI: 10.1016/j.jpolmod.2016.03.001
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    References listed on IDEAS

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    Cited by:

    1. Ivica Klinac & Roberto Ercegovac & Mario Pecaric, 2021. "Post Crisis Banking Sector Regulation And European Union Economic Growth Nexus," Economic Review: Journal of Economics and Business, University of Tuzla, Faculty of Economics, vol. 19(2), pages 15-26, November.
    2. Spelta, A. & Pecora, N. & Rovira Kaltwasser, P., 2019. "Identifying Systemically Important Banks: A temporal approach for macroprudential policies," Journal of Policy Modeling, Elsevier, vol. 41(1), pages 197-218.
    3. Małgorzata Iwanicz-Drozdowska & Krzysztof Jackowicz & Maciej Karczmarczyk, 2021. "“The Crooked Smile of TCR†: Banks’ Solvency and Restructuring Costs in the European Banking Industry," SAGE Open, , vol. 11(3), pages 21582440211, September.
    4. Paola Bongini & Małgorzata Iwanicz-Drozdowska & Paweł Smaga & Bartosz Witkowski, 2018. "In search of a measure of banking sector distress: empirical study of CESEE banking sectors," Risk Management, Palgrave Macmillan, vol. 20(3), pages 242-257, August.
    5. Calò, Silvia, 2019. "Bailouts: The lesser of two evils?," Journal of Policy Modeling, Elsevier, vol. 41(1), pages 84-98.

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    More about this item

    Keywords

    Restructuring; State aid; Bailout; Resolution;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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