Skip to main content

Safe Bank

Published: 2014-05-01

Why Closing Failed Banks Helps the Real Economy

Josef Korte

Abstract

It is widely agreed that banks play a growth-enhancing role for the real economy. However, distorted incentives around bank insolvency may corrupt banks’ credit allocation and monitoring – ultimately leading to suboptimal real economic performance. The outcomes of such distorted incentives are suboptimal credit allocation and monitoring – which is felt in the real economy: Not the
projects and firms that need (and deserve) credit most on grounds of economic viability and profitability, but those that have particular risk- or asset-profiles are now favored by incentive-corrupted financial intermediaries. The results strongly advocate putting bank insolvency and resolution regimes center stage in discussions towards reforming bank regulation. In the European context, this calls for particular emphasis on the common resolution framework and the Single Resolution Mechanism as a vital part of the European Banking Union.

Download files

Citation rules

Korte, J. (2014). Why Closing Failed Banks Helps the Real Economy . Safe Bank, 55(2), 85–90. Retrieved from https://ojs.bfg.pl/index.php/bb/article/view/377

Most read articles by the same author(s)

Vol. 55 No. 2 (2014)
Published: 2024-02-19


ISSN: 1429-2939
eISSN: 2544-7068
Ikona DOI 10.26354

Publisher
Bankowy Fundusz Gwarancyjny

-->
This website uses cookies for proper operation, in order to use the portal fully you must accept cookies.