Bail-in and Market Stabilization

Georg Ringe

Research output: Other contributionNet publication - Internet publicationCommunication

Abstract

The concept of “bailing in” a distressed bank’s creditors to avoid a taxpayer-financed public rescue is commonly accepted as one of the most significant regulatory achievements in the post-crisis efforts to end the problem of “Too Big To Fail”. Yet behind the political slogan, surprising uncertainties remain as to the precise regulatory objective of bail-in, as well as its trigger and the requirements for applying bail-in powers. Further, broad scepticism is voiced as to decisiveness of regulators to make use of their bail-in powers. In short, serious doubts persist as to the credibility of the concept, in particular relating to the fear that regulators may shy away from taking bail-in action in the decisive moment of rescue operations. Regulatory frameworks are ambivalent about the precise trigger requirements and substantial conditions for applying it. At the bottom of this vagueness is a surprising uncertainty about the policy purpose of bail-in.
The concept of “bailing in” a distressed bank’s creditors to avoid a taxpayer-financed public rescue is commonly accepted as one of the most significant regulatory achievements in the post-crisis efforts to end the problem of “Too Big To Fail”. Yet behind the political slogan, surprising uncertainties remain as to the precise regulatory objective of bail-in, as well as its trigger and the requirements for applying bail-in powers. Further, broad scepticism is voiced as to decisiveness of regulators to make use of their bail-in powers. In short, serious doubts persist as to the credibility of the concept, in particular relating to the fear that regulators may shy away from taking bail-in action in the decisive moment of rescue operations. Regulatory frameworks are ambivalent about the precise trigger requirements and substantial conditions for applying it. At the bottom of this vagueness is a surprising uncertainty about the policy purpose of bail-in.
LanguageEnglish
Date2016
StatePublished - 2016

Keywords

  • Bailouts
  • Banks
  • Central banking
  • Failed banks
  • Financial crisis
  • Financial institutions
  • Financial regulation
  • Liquidity
  • Market reaction
  • Resolution authority
  • SIFIs
  • Too big to fail

Cite this

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Bail-in and Market Stabilization. / Ringe, Georg.

2016, Blog.

Research output: Other contributionNet publication - Internet publicationCommunication

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