Bank Resolution and the Structure of Global Banks

Abstract

We study the resolution of global banks by national regulators. Single-point-of-entry (SPOE) resolution, where loss-absorbing capital is shared across jurisdictions, is efficient but faces implementation constraints. First, when expected transfers across jurisdictions are too asymmetric, national regulators fail to set up SPOE resolution ex ante. Second, when required ex post transfers are too large, national regulators ring-fence assets instead of cooperating in SPOE resolution. In this case, a multiple-point-of-entry (MPOE) resolution, where loss-absorbing capital is preassigned, is more robust. Our analysis highlights a fundamental link between efficient bank resolution, the operational structures, risks, and incentives of global banks. (JEL G21, G28, G33)

Subordinate Resolution ‐‐ An Empirical Analysis of European Union Subsidiary Banks

“…The latter finding ties in with results previously presented, demonstrating recent funding fragility for domestic subsidiaries. Linking this with previous work on bail‐in in centralized and de‐centralized banks (Bolton and Oehmke, ), these results provide further support for SPOE resolution in more centralized domestic subsidiaries.…”

“…Bolton and Oehmke () contend that the trade‐off between SPOE and MPOE resolution plans depends upon the nature of the bank's underlying business. Examining this for subsidiaries, we find a variety of distinct differences in terms of risk and funding.…”

“…The second, multiple points of entry (MPOE), involves resolution of parts of a banking group as separate entities in different jurisdictions by multiple regulators. The appeal of SPOE resolution is relative simplicity but implementation may be hampered by asymmetric losses across multiple jurisdictions (Bolton and Oehmke, ). The SPOE approach may also be vulnerable to legal impediments, especially in circumstances where subsidiaries are not located domestically (see Kupiec and Wallison, ) for an examination of US SPOE implementation).…”