Cover IMF Working Papers
Optimal Bank Recovery
Author:
Mr. C. A. E. Goodhartnull

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Miguel A. Segoviano
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Series:
IMF Working Papers
Volume/Issue:
Volume 2015: Issue 217
Language:
English
Publication Date:
30 Sep 2015
DOI:
https://doi.org/10.5089/9781513584263.001
ISBN:
9781513584263
ISSN:
1018-5941
Pages:
41
Keywords:
WP; loss distribution; bank loss; distress probability; loss absorption buffer; log asset return; Bank Recovery; Bank Resolution; Metrics for Triggers; Loss Absorption; Probability of Distress; Loan Default; banks RBS; market cap; banks' equity; Systemic risk; Bank solvency; Loans; Financial sector stability; Stocks; Global
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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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Banks’ living wills involve both recovery and resolution. Since it may not always be clear when recovery plans or actions should be triggered, there is a role for an objective metric to trigger recovery. We outline how such a metric could be constructed meeting criteria of (i) adequate loss absorption; (ii) distinguishing between weak and sound banks; (iii) little susceptibility to manipulation; (iv) timeliness; (v) scalable from the individual bank to the system. We show how this would have worked in the U.K., during 2007–11. This approach has the added advantage that it could be extended to encompass a whole ladder of sanctions of increasing severity as capital erodes.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 2015: Issue 217