Default of Systemically Important Financial Intermediaries: Short-term Stability versus Incentive Compatibility?

Andreas Dombret; André Ebner

doi:10.1111/geer.12002

Article

Default of Systemically Important Financial Intermediaries: Short-term Stability versus Incentive Compatibility?

Andreas Dombret and André Ebner

Published/Copyright: November 30, 2019

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From the journal German Economic Review Volume 14 Issue 1

Abstract

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.

Keywords: Too-systemic-to-fail; resolution regimes; SIFIs; cross-border insolvency

Published Online: 2019-11-30

Published in Print: 2013-02-01

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Articles in the same Issue

https://doi.org/10.1111/geer.12002

Keywords for this article

Too-systemic-to-fail; resolution regimes; SIFIs; cross-border insolvency