Bank Restructuring in the EU: Which Way to Go?

Posted: 2 May 2016 Last revised: 3 May 2016

See all articles by Malgorzata Iwanicz-Drozdowska

Malgorzata Iwanicz-Drozdowska

Warsaw School of Economics, Institute of Finance

Paweł Smaga

Warsaw School of Economics (SGH) - Department of Finance and Management; National Bank of Poland

Bartosz Witkowski

Warsaw School of Economics (SGH)

Date Written: March 30, 2016

Abstract

We empirically analysed the costs of bank restructuring measures undertaken in the EU countries during recent global financial crisis under the state aid framework. With a unique dataset from over 80 bank case studies in 2008-2014, we modeled the determinants of bailout costs and ranked the cost of each tool applied. We have found that the most important determinant was level of capital adequacy, while the most cost-consuming tool — liquidation of a bank. Thus, our study provides implications on the selection of state aid tools and sheds a new light on their costs. Overall, we concluded that banks’ higher loss absorption capacity, strengthened supervision over small and medium-sized banks and restrictive approach to diagnose bank’s problems may limit the costs of future rescue operations.

Keywords: Restructuring; State aid; Bailout; Resolution

JEL Classification: G21, G28, H12

Suggested Citation

Iwanicz-Drozdowska, Malgorzata and Smaga, Paweł and Witkowski, Bartosz, Bank Restructuring in the EU: Which Way to Go? (March 30, 2016). Journal of Policy Modeling, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2773750

Malgorzata Iwanicz-Drozdowska (Contact Author)

Warsaw School of Economics, Institute of Finance ( email )

Warsaw
Poland

Paweł Smaga

Warsaw School of Economics (SGH) - Department of Finance and Management ( email )

Warsaw
Poland

National Bank of Poland ( email )

Poland

Bartosz Witkowski

Warsaw School of Economics (SGH) ( email )

aleja Niepodleglosci 162
PL-Warsaw, 02-554
Poland

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