Too-international-to-fail? Supranational bank resolution and market discipline


Supranational resolution of insolvent banks does not necessarily improve welfare. Supranational regulators are more inclined to bail-out banks indebted towards international creditors because they take into account cross-border contagion. When banks’ creditors are more likely to be bailed out, market discipline decreases and risk-taking by indebted banks increases. Depending on the trade-off between giving the right incentives ex ante and limiting contagion ex post, both a national and a supranational resolution framework can be optimal. In particular, if market discipline is low under both national and supranational resolution mechanisms, supranational resolution improves welfare as it stimulates interbank trade.

Journal of Banking and Finance
Marius Zoican
Marius Zoican
Associate Professor of Finance

I study the impact of (new) technology on securities exchanges and asset management, as well as how to leverage technological innovations to build a better market.