Bank Resolution Costs Depositor Preference And Asset Encumbrance

Download or read book Bank Resolution Costs, Depositor Preference, and Asset Encumbrance written by Mr.Daniel C. Hardy and published by International Monetary Fund. This book was released on 2013-07-18 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: Depositor preference and collateralization of borrowing may reduce the cost of settling the conflicts among creditors that arises in case of resolution or bankruptcy. This net benefit, which may be capitalized into the value of the bank rather than affect creditors’ expected returns, should result in lower overall funding costs and thus a lower probability of distress despite increasing encumbrance of the bank’s balance sheet. The benefit is maximized when resolution is initiated early enough for preferred depositors to remain fully protected.