The views expressed in the analysis are those of the authors and do not necessarily reflect the views of the Deutsche Bundesbank or its staff. Andreas Dombret is member of the Executive Board of the Deutsche Bundesbank and André Ebner is an economist in the Financial Stability Department of the Deutsche Bundesbank. Corresponding author's e-mail address: email@example.com.
Default of Systemically Important Financial Intermediaries: Short-term Stability versus Incentive Compatibility?
Article first published online: 21 DEC 2012
© 2013 The Authors. German Economic Review © 2013 Verein für Socialpolitik
German Economic Review
Volume 14, Issue 1, pages 15–30, February 2013
How to Cite
Dombret, A. and Ebner, A. (2013), Default of Systemically Important Financial Intermediaries: Short-term Stability versus Incentive Compatibility?. German Economic Review, 14: 15–30. doi: 10.1111/geer.12002
- Issue published online: 21 DEC 2012
- Article first published online: 21 DEC 2012
- resolution regimes;
- cross-border insolvency
Financial integration and globalization have acted as a major stimulus in the development of large, internationally operating banks, which not only provide cross-border services but also have a local presence. While these banks are themselves drivers of economic integration, they can pose serious threats to financial stability. Their size, interconnectedness and importance as providers of specific services mean that financial institutions can be too-systemic-to-fail (TSTF). Since the entry and exit of market participants is a crucial feature of well-functioning markets, the absence of any credible possibility of failure leads to serious distortions. This analysis gives an overview of the TSTF problem and discusses the challenges to be faced in establishing credible resolution regimes.