Bank insolvencies, priority claims and systemic risk
We review an extensive literature debating the merits of alternative priority structures for banking liabilities put forward by financial economists, legal scholars and policymakers. Up to now, this work has focused exclusively on the relative advantages of each group of creditors to monitor the act...
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| Format: | Article |
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Springer
2016
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| Online Access: | https://eprints.nottingham.ac.uk/37561/ |
| _version_ | 1848795484407201792 |
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| author | Bougheas, Spiros Kirman, Alan |
| author_facet | Bougheas, Spiros Kirman, Alan |
| author_sort | Bougheas, Spiros |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | We review an extensive literature debating the merits of alternative priority structures for banking liabilities put forward by financial economists, legal scholars and policymakers. Up to now, this work has focused exclusively on the relative advantages of each group of creditors to monitor the activities of bankers. We argue that systemic risk is another dimension that this discussion must include. The main message of our work is that when bank failures are contagious then when regulators assign priority rights need also to take into account how the bankruptcy resolution of one institution might affect the survival of other institutions that have acted as its creditors. When the network structure is fixed the solution is straightforward. Other banks should have priority to minimize the risk of their downfall. However, if the choice of policy can affect the structure of the network, policy design becomes more complex.This is a fruitful avenue for future research. |
| first_indexed | 2025-11-14T19:32:49Z |
| format | Article |
| id | nottingham-37561 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| last_indexed | 2025-11-14T19:32:49Z |
| publishDate | 2016 |
| publisher | Springer |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-375612020-05-04T18:12:07Z https://eprints.nottingham.ac.uk/37561/ Bank insolvencies, priority claims and systemic risk Bougheas, Spiros Kirman, Alan We review an extensive literature debating the merits of alternative priority structures for banking liabilities put forward by financial economists, legal scholars and policymakers. Up to now, this work has focused exclusively on the relative advantages of each group of creditors to monitor the activities of bankers. We argue that systemic risk is another dimension that this discussion must include. The main message of our work is that when bank failures are contagious then when regulators assign priority rights need also to take into account how the bankruptcy resolution of one institution might affect the survival of other institutions that have acted as its creditors. When the network structure is fixed the solution is straightforward. Other banks should have priority to minimize the risk of their downfall. However, if the choice of policy can affect the structure of the network, policy design becomes more complex.This is a fruitful avenue for future research. Springer 2016-09-15 Article PeerReviewed Bougheas, Spiros and Kirman, Alan (2016) Bank insolvencies, priority claims and systemic risk. Lecture Notes in Economics and Mathematical Systems, 683 . pp. 195-208. ISSN 0075-8442 Banks; Priority rules; Systemic risk http://link.springer.com/chapter/10.1007/978-3-319-40803-3_8 doi:10.1007/978-3-319-40803-3_8 doi:10.1007/978-3-319-40803-3_8 |
| spellingShingle | Banks; Priority rules; Systemic risk Bougheas, Spiros Kirman, Alan Bank insolvencies, priority claims and systemic risk |
| title | Bank insolvencies, priority claims and systemic risk |
| title_full | Bank insolvencies, priority claims and systemic risk |
| title_fullStr | Bank insolvencies, priority claims and systemic risk |
| title_full_unstemmed | Bank insolvencies, priority claims and systemic risk |
| title_short | Bank insolvencies, priority claims and systemic risk |
| title_sort | bank insolvencies, priority claims and systemic risk |
| topic | Banks; Priority rules; Systemic risk |
| url | https://eprints.nottingham.ac.uk/37561/ https://eprints.nottingham.ac.uk/37561/ https://eprints.nottingham.ac.uk/37561/ |