Abstract
When will a policy authority (PA) resolve a bank whose solvency is uncertain? Delaying resolution gives the PA time to obtain additional information about the bank's solvency. Delaying resolution also gives uninsured creditors time to withdraw funds, raising the cost of bailing out insured depositors. The optimal resolution date trades off these costs with the option value of making a more efficient resolution decision given new information. Providing the bank with liquidity support buys the PA time to wait for information, but increases its losses if the bank turns out to be insolvent. The PA may therefore optimally delay the provision of liquidity support.
Originalsprache | Englisch |
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Herausgeber | SSRN |
Seitenumfang | 62 |
DOIs | |
Publikationsstatus | Veröffentlicht - 2022 |