BAFI Academic Seminar

We develop a dynamic model of optimal regulatory design of three regimes that deal with distress of large, complex banking organizations. These regimes are 1) bailout, as under TARP; 2) bail-in, as under Orderly Liquidation Authority; and 3) no regulatory intervention, as under Financial CHOICE Act. Model results suggest that only a bail-in tailored to individual banks provides incentives for banks to rebuild capital preemptively during financial distress. Empirical tests of changes in capital ratios and speeds of adjustment in response to shifting from the pre-crisis bailout regime to the post-crisis bail-in regime corroborate the predictions of the model.  This paper is co-authored with Charles P. Himmelberg, Goldman Sachs & Co, Raluca A. Roman, Federal Reserve Bank of Kansas City, and Sergey Tsyplakov, University of South Carolina.

Fee: [Yes/No/Varies]

Contact Information:
Tedda Nathan
Dept. Administrator
txn2@case.edu
216-368-2040 [Phone]
216-368-6249 [Fax]