VGSF - WU Vienna - LC

Javier Suarez, CEMFI Madrid

Campus WU D3.0.225 11:00 - 12:30

Organizer VGSF

As part of the ser­ies of the "Fin­ance Re­search Sem­inar", VGSF wel­comes Javier Suarez from CEMFI Mad­rid to present his re­search pa­per.
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Op­tim­ally Solv­ing Banks' Leg­acy Prob­lems

We char­ac­ter­ize policy in­ter­ven­tions dir­ec­ted to min­im­ize the cost to the de­posit guar­an­tee scheme and the tax­pay­ers of banks with leg­acy prob­lems. Non-per­form­ing loans (NPLs) with low and risky re­turns cre­ate a debt over­hang that in­duces bank own­ers to forego pro…table lend­ing op­por­tun­it­ies. NPL dis­posal re­quire­ments can restore the in­cent­ives to un­der­take new lend­ing but, as they force bank own­ers to ab­sorb losses, can also make them prefer the bank be­ing re­solved. For severe leg­acy prob­lems, com­bin­ing NPL dis­posal re­quire­ments with pos­it­ive trans­fers is op­timal and in­volves no con‡ict between min­im­iz­ing the cost to the au­thor­ity and max­im­iz­ing over­all sur­plus.

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