Paolo, Guidici, Parisi, Laura, (2017), “Correlation networks to measure the systemic implications of bank resolution”, VoxEU, 28 August
In the European single resolution framework, there are three potential paths for failing banks: bail-in, private intervention, or liquidation. This column proposes combining a new market-based early warning measure of credit risk based on CDS spreads to investigate potential losses and systemic contagion for each path. Applying this to Italy’s banking system suggests that private intervention and a bail-in minimise losses compared to liquidation, and, bail-in slightly reduces contagion effects compared to private intervention.
Relevant Posts
- Schoenmaker, Dirk, (2017), «A macro approach to international bank resolution», Bruegel, 10 July
- Philippon, Thomas, Salord, Aude, (2017), «Bail-ins and Bank Resolution in Europe: A Progress Report», Centre for Economic Policy Research, 20 June