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Tomasz Dubiel-Teleszynski
- 13 June 2022
- MACROPRUDENTIAL BULLETIN - ARTICLE - No. 17Details
- Abstract
- A system-wide stress testing framework allows for a comprehensive assessment of the financial impact of severe climate risk scenarios. The combined reactions of banks, investment funds and insurers to climate stress amplify losses in the financial system.
- JEL Code
- D85 : Microeconomics→Information, Knowledge, and Uncertainty→Network Formation and Analysis: Theory
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
L14 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Transactional Relationships, Contracts and Reputation, Networks
- 2 October 2018
- WORKING PAPER SERIES - No. 2181Details
- Abstract
- We develop a structural model for valuing bank balance sheet components such as the equity and debt value, the value for the government when the bank is operated by private shareholders including the present value of a possible future bailout, the bailout value incurred by the government following the abandonment of the private shareholders, and, moreover, some price and risk parameters, including the funding cost spread and the banks’ probability of default. The structural model implies an abandonment threshold, at which if total income drops below this threshold, private shareholders abandon the bank. In this case, the shareholders lose part (or all) of the capital that they hold in the bank, the creditors lose part or all of their debt, and the government receives a portion (or all) of the capital and all of the debt that is not recovered by creditors. Hence, we assume that part of the capital can be lost due to financial distress or to cover bankruptcy costs. We use the model framework to assess the impact of capital-based macro-prudential policy measures and focus in particular on assessing the difference that an assumed bail-in as opposed to bail-out regime can make.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
H81 : Public Economics→Miscellaneous Issues→Governmental Loans, Loan Guarantees, Credits, Grants, Bailouts
- 13 November 2017
- WORKING PAPER SERIES - No. 2110Details
- Abstract
- In this paper, we construct a structural model to determine the costs of a bank rescue considering bail-outs and bail-ins. In our model, a government assumes the equity stake under unlimited liability upon abandonment of the original equity holders. The model determines an abandonment trigger such that if total income drops below this trigger, private shareholders abandon the bank. Given this trigger, the model also determines the bank rescue costs, the expected time to the bank rescue and the bank rescue probabilities. A static analysis of our model produces several empirically testable hypotheses. The model was explored in a sample of southern European countries considering alternative assumptions regarding parameter estimates and the behavior of operational costs. The model results regarding the rescue costs are reasonable, but the model also predicts bank rescues, estimates equity values, performs welfare analyses and estimates the impact of different macro- and micro-prudential policies. The empirical exercise we present, highlights the importance of the assumptions made regarding the behavior of the operational costs by showing dramatic differences in results in a sample of countries that otherwise appear to share important cultural and geographical proximities.
- JEL Code
- G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
H81 : Public Economics→Miscellaneous Issues→Governmental Loans, Loan Guarantees, Credits, Grants, Bailouts