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Published : 2021-05-18
Vol. 82 No. 1 (2021)

In Search of Ways for Financing a Bank’s Liquidity in Resolution

Magdalena Kozińska

https://orcid.org/0000-0001-8767-6545

Jarosław Michalewicz

https://orcid.org/0000-0002-8846-3442

Beata Zdanowicz

https://orcid.org/0000-0003-1284-596X

DOI: https://doi.org/10.26354/bb.1.1.82.2021

Abstract

The article concerns the issue of maintaining the liquidity of a bank subject to resolution procedure. The legal framework relating to this process focus mainly on meeting the capital requirements of a bank in resolution. Nevertheless, one of the crucial conditions for achieving the goal of resolution is to maintain the bank’s liquidity throughout the process. The establishment, method of establishing and the value of accumulated funds dedicated to resolution in individual countries or a group of countries (e.g. the banking union) implicates that their ability to meet the needs of banks may be insufficient. Especially when the demand for liquidity support is high due to a sudden outflow of funds from customers’ accounts. A circumstance that highlights the significance of the problem of maintaining liquidity is usually the difficult situation of the bank in resolution, limiting or even preventing from obtaining external financing from the market. All the above-mentioned issues is a premise for establishing special solutions or methods for supporting a bank’s liquidity in resolution, the more so as the possible use of operations with a central bank – as a lender of last resort – is conditioned by the fulfillment of a number of requirements that may be difficult or even impossible for such a bank to meet. Against this background, the article reviews and systematizes the solutions that create opportunities for the bank in resolution to obtain external financing from financial system entities, with particular emphasis on financial safety net entities, in order to secure its liquidity position.

Keywords:

resolution, liquidity, resolution fund, deposit insurance fund, central bank, financial markets

JEL Codes

G01, G10, G18, G21, G28, G33

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Kozińska, M., Michalewicz, J., & Zdanowicz, B. (2021). In Search of Ways for Financing a Bank’s Liquidity in Resolution. Safe Bank, 82(1), 8–47. https://doi.org/10.26354/bb.1.1.82.2021

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