Finance Research Seminar: “Financial Restructuring and Resolution of Banks” by J-E COLLIARD – HEC PARIS
Speakers: Jean-Edouard COLLIARD
Date and Location – Thursday June 24th 2021 from 13:00 to 14:30 on Zoom
How do resolution frameworks aﬀect the private restructuring of distressed banks? We model a distressed bank’s shareholders and creditors negotiating a restructuring given asymmetric information about asset quality and externalities onto the government. This yields negotiation delays used to signal asset quality. we ﬁnd that strict bail-in rules increase delays by worsening informational frictions and reducing bargaining surplus. We characterize optimal bail-in rules for the government. We then consider the government’s possible involvement in negotiations. We ﬁnd this can lead to shorter or longer delays. Notably, the government may gin from committing not to partake in negotiations.
Keywords: Bank resolution, bail-out, bail-in, debt restructuring.