Who Pays for Bank Insolvency?

Avaliação de insolvência em cooperativas de crédito: uma aplicação do sistema Pearls

“…Muitas análises de insolvência e falência têm sido feitas no setor bancário, o que é de interesse público (ATAY, 2006;BLISS;KAUFMAN, 2006), uma vez que a falência de instituições bancárias pode gerar consequências mais nefastas para a economia do que a falência de empresas não pertencentes ao setor financeiro. Nesse tocante, nos últimos 30 anos, problemas de insolvência bancária têm sido recorrentes em diversas partes do mundo (Campbell, 2007), o que só reafirma a importância de realizar estudos a respeito dessa temática como fizeram Mayes (2004Mayes ( , 2005, Atay (2006), Bliss e Kaufman (2006), Campbell (2006), Lastra (2008) e Imai (2009).…”

The Role of Market Discipline in Handling Problem Banks

“…The value of the bank as a going concern will reflect the expectation that the authorities will intervene and close the bank as soon as the apparent net worth on their assessment of the current valuations reaches zero. Mayes et al (2001) and Mayes and Liuksila (2003) argue that the intervention point should be as near to zero as possible, so that the degree to which a haircut has to be applied to the claims on the bank to restore solvency is small. 1 In these circumstances the authorities still have to make a valuation of the bank in order to apply the appropriate haircut to restore solvency.…”

“…The window in which the junior or subordinated debtors will receive anything much in the way of payout in the event of failure is quite small as the costs of insolvency normally mop up quite a substantial part of the value of the company, all of which is set off against the claims of the creditors in reverse order of seniority. Mayes et al (2002) and Mayes and Liuksila (2003) argue that banks in Group (iii) should be treated in the same way as banks in Group (iv), as they are only viable through the contingent claim on the taxpayer. Our starting point is that taxpayers should not have to pay for bank insolvency any more than they pay for the insolvency of any other nonfinancial company.…”

“…It is very obvious from the rating agencies' attitude to the adequacy of bank capital, that from their point of view a bank starts looking increasingly risky well before it gets close to breaching the regulatory limits (Ridpath, 2003). Mayes and Liuksila (2003) argue that the authorities should switch the focus of their analysis of the capital position of the bank from compliance with regulatory capital rules to net worth as soon as the regulatory boundary has been breached.…”

“…While the deposit insurance fund does not necessarily have to be the agency responsible for ensuring PCA, the coincidence of incentives makes this attractive. Certainly, as Mayes and Liuksila (2003) point out, it is very difficult to get prompt or indeed any corrective action if there are multiple authorities involved, particularly if they run across borders. Gruben et al (2002) and Beck (2003) consider two related issues: the extent to which the absence of market discipline (often due to the existence of deposit insurance) induces banks into risky behaviour; and the difference that the existence of market discipline makes in determining the impact that financial liberalisation has on banks adopting higher risk profiles.…”