An approach for initiating interventions for bank recovery

Abstract

Purpose

This paper proposes an objective metric to trigger bank recovery. Banks’ living wills involve both recovery and resolution. Since it may not always be clear when recovery plans or actions should be triggered, there is a role for an objective metric to trigger recovery.

Design/methodology/approach

We outline how such a metric could be constructed meeting criteria of adequate loss absorption; distinguishing between weak and sound banks; little susceptibility to manipulation; timeliness; scalable from the individual bank to the system.

Findings

We show how this would have worked in the UK, during 2007-2011.

Originality/value

This approach has the added advantage that it could be extended to encompass a whole ladder of sanctions of increasing severity as capital erodes.

Citation

Goodhart, C.A.E. and Segoviano, M.A. (2017), "An approach for initiating interventions for bank recovery", Journal of Financial Regulation and Compliance, Vol. 25 No. 4, pp. 360-380. https://doi.org/10.1108/JFRC-01-2017-0005