"How effective are bad bank resolutions? New evidence from Europe"

Michael Brei | Université de Lille, CNRS, IÉSEG School of Management
Leonardo Gambacorta Bank for International Settlements and Centre for Economic Policy Research - CEPR
Marcella Lucchetta Università Ca' Foscari Venezia
Bruno Maria Parigi Dipartimento di Scienze Economiche e Aziendali dell'Università degli Studi di Padova

This study, published in the Journal of Financial Stability, examines the effectiveness of bank resolutions in Europe from 2000-19. It reveals that bad banks outperform state-funded recapitalizations, resulting in increased lending, while recapitalizations often reduce lending. Additionally, both approaches lead to a significant reduction in the cost of bank funding and a shift towards deposit funding.

Read the full paper here