liability of banks and the presence of a negative externality of one bank’s failure on the health of other banks give rise to a … risk. Regulatory mechanisms such as bank closure policy and capital adequacy requirements that are commonly based only on a … bank’s own risk fail to mitigate aggregate risk-shifting incentives, and can, in fact, accentuate systemic risk. Prudential …

This Paper shows that bank closure policies suffer from a ‘too-many-to-fail’ problem: when the number of bank failures … is large, the regulator finds it ex-post optimal to bail out some or all failed banks, whereas when the number of bank …-ante standpoint. We formalize this time-inconsistency of bank regulation. We also argue that by allowing banks to purchase failed …

As the number of bank failures increases, the set of assets available for acquisition by the surviving banks enlarges … for liquidation of banking assets. At a sufficiently large number of bank failures, and in turn, at a sufficiently low … and allowing the regulator to price-discriminate against outsiders in the market for bank sales. …

). Distinguishing between different types of capital (financial, physical, intangible), different forms of incentives (performance pay …

Insurance contracts contingent on macroeconomic shocks or on average bank capital could be a way of insuring against … even bank insolvency. In a simple model we illustrate the working of these contracts and how insurance could be achieved … crises, and managerial restrictions on a rising bank equity capital limit insurance. Finally we discuss some complementary …

This paper focuses on bank rescue packages and on the behaviour of troubled banks in light of rescue offers. A puzzling … feature of experience with banking crises is that in many cases policy authorities make offers of bank rescue, and banks are … reluctant to accept these offers. We study situations in which regulators have decided to offer bank rescue plans, and we show …