30 April 2018

Seminar on the banking crisis in Europe

Central Bank of Iceland

Seminar on the banking crisis in Europe
Bank financial distress and restructuring in Europe

A seminar on this subject will be held in Sölvhóll, a meeting room in the Central Bank of Iceland on 30 April at 15:00

Speaker: Professor Małgorzata Iwanicz-Drozdowska from the Warsaw School of Economics
 

Abstract: A discussion of the causes of banks’ distress in Europe, with special attention paid to the period of the global financial crisis (GFC), as well as the restructuring tools applied in Europe during the GFC. The first research task was to investigate non-distress (“glory”) and distress (“shame”) paths of banks from 1 to 4 years prior to a distress event to test how different they are.

This approach allows us to outline guidelines for supervisors on how to detect banks generating higher risk of distress several years before its occurrence. The second research task was to model the determinants of restructuring costs and rank the cost of each tool applied. The empirical graduation of cost of restructuring tools proves that – so far – the leading tools in the EU have been selected properly.

The final assessment should be made once the state aid expires. Liquidation was applied (except in Cyprus) to small and medium-sized banks. It was the most expensive restructuring tool, used when there was ‘no hope’ for bank recovery, even with considerable financial support. For three liquidated banks bail-in was applied. The least costly and the most common restructuring tool was ‘pure’ recapitalisation, which is a typical bailout measure.

Thus, the conclusion is that the bailout should not be written off the political agenda. However, it should only be used under very restrictive conditions.

The seminar will be in English.

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