Finance Research Seminar: “Financial Restructuring and Resolution of Banks” by J-E COLLIARD – HEC PARIS

Speakers: Jean-Edouard COLLIARD
HEC Paris

Date and Location – Thursday June 24th 2021 from 13:00 to 14:30 on Zoom

ABSTRACT

How do resolution frameworks affect the private restructuring of distressed banks? We model a distressed bank’s shareholders and creditors negotiating a restructuring given asymmetric information about asset quality and externalities onto the government. This yields negotiation delays used to signal asset quality. we find that strict bail-in rules increase delays by worsening informational frictions and reducing bargaining surplus. We characterize optimal bail-in rules for the government. We then consider the government’s possible involvement in negotiations. We find this can lead to shorter or longer delays. Notably, the government may gin from committing not to partake in negotiations.

Keywords: Bank resolution, bail-out, bail-in, debt restructuring.