Cover IMF Working Papers
Recovery Determinants of Distressed Banks: Regulators, Market Discipline, or the Environment?
Author:
Michael Koetternull

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Mr. Tigran Poghosyan
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Thomas Kicknull

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Series:
IMF Working Papers
Volume/Issue:
Volume 2010: Issue 027
Language:
English
Publication Date:
01 Jan 2010
DOI:
https://doi.org/10.5089/9781451962499.001
ISBN:
9781451962499
ISSN:
1018-5941
Pages:
29
Keywords:
WP; distressed bank; bank recovery; joint stock; support bank; troubled bank; Bank distress; capital support; regulation; recovery; capital injection; savings bank; core business; shows bank; Bank resolution; Auditing; Loans; Special purpose vehicle; Stocks; Global; Europe
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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Based on detailed regulatory intervention data among German banks during 1994-2008, we test if supervisory measures affect the likelihood and the timing of bank recovery. Severe regulatory measures increase both the likelihood of recovery and its duration while weak measures are insignificant. With the benefit of hindsight, we exclude banks that eventually exit the market due to restructuring mergers. Our results remain intact, thus providing no evidence of "bad" bank selection for intervention purposes on the side of regulators. More transparent publication requirements of public incorporation that indicate more exposure to market discipline are barely or not at all significant. Increasing earnings and cleaning credit portfolios are consistently of importance to increase recovery likelihood, whereas earnings growth accelerates the timing of recovery. Macroeconomic conditions also matter for bank recovery. Hence, concerted micro- and macro-prudential policies are key to facilitate distressed bank recovery.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2010: Issue 027