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This book shows that a special bank bankruptcy regime is desirable for the efficient restructuring and/or liquidation of distressed banks. It explores in detail both the principal features of corporate bankruptcy law and the specific characteristics of banks including the importance of public confidence, negative externalities of bank failures, fragmented regulatory framework, bank opaqueness, and the related asset-substitution problem and liquidity provision. These features distinguish banks from other corporations and are largely neglected in corporate bankruptcy law. The authors, an assistant professor for money and finance and a research economist at the Dutch Central Bank, propose changes in both prudential regulation and reorganization policies that should allow regulators and banking authorities to better mitigate disruptions in the financial system and minimize the social costs of bank failures. Their recommendations are complemented by a discussion of bank failures from the 2007–2009 financial crisis.

Bank failures --- Banking law. --- Bankruptcy. --- Law and legislation. --- Banking law --- Bankruptcy --- Cessio bonorum --- Insolvency --- Privileged debts --- Business failures --- Commercial law --- Debt --- Banks and banking --- Law, Banking --- Financial institutions --- Law and legislation

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Bankruptcy. --- Bank failures --- Law and legislation.

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Traditional theory suggests that more profitable banks should have lower risk-taking incentives. Then why did many profitable banks choose to invest in untested financial instruments before the crisis, realizing significant losses? We attempt to reconcile theory and evidence. In our setup, banks are endowed with a fixed core business. They take risk by levering up to engage in risky ‘side activities’(such as market-based investments) alongside the core business. A more profitable core business allows a bank to borrow more and take side risks on a larger scale, offsetting lower incentives to take risk of given size. Consequently, more profitable banks may have higher risk-taking incentives. The framework is consistent with cross-sectional patterns of bank risk-taking in the run up to the recent financial crisis.

Banks and banking --- Bank profits --- Financial risk --- Business risk (Finance) --- Money risk (Finance) --- Risk --- Bank earnings --- Profit --- Agricultural banks --- Banking --- Banking industry --- Commercial banks --- Depository institutions --- Finance --- Financial institutions --- Money --- Econometric models. --- Banks and Banking --- Finance: General --- Financial Risk Management --- Money and Monetary Policy --- Taxation --- Investments: Stocks --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Investment Banking --- Venture Capital --- Brokerage --- Ratings and Ratings Agencies --- Financial Institutions and Services: Government Policy and Regulation --- General Financial Markets: Government Policy and Regulation --- Taxation, Subsidies, and Revenue: General --- Financial Crises --- Monetary Policy --- Pension Funds --- Non-bank Financial Institutions --- Financial Instruments --- Institutional Investors --- Public finance & taxation --- Economic & financial crises & disasters --- Monetary economics --- Investment & securities --- Bank soundness --- Tax incentives --- Financial crises --- Accommodative monetary policy --- Financial sector policy and analysis --- Monetary policy --- Investment banking --- Financial services --- Stocks --- United States

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The paper studies risk mitigation associated with capital regulation, in a context where banks may choose tail risk asserts. We show that this undermines the traditional result that high capital reduces excess risk-taking driven by limited liability. Moreover, higher capital may have an unintended effect of enabling banks to take more tail risk without the fear of breaching the minimal capital ratio in non-tail risky project realizations. The results are consistent with stylized facts about pre-crisis bank behavior, and suggest implications for the optimal design of capital regulation.

Bank capital --- Banks and banking --- Financial risk management --- Risk management --- Agricultural banks --- Banking --- Banking industry --- Commercial banks --- Depository institutions --- Finance --- Financial institutions --- Money --- Capital --- State supervision --- Econometric models. --- Banks and Banking --- Financial Risk Management --- Taxation --- Criteria for Decision-Making under Risk and Uncertainty --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Financial Institutions and Services: Government Policy and Regulation --- Financing Policy --- Financial Risk and Risk Management --- Capital and Ownership Structure --- Value of Firms --- Goodwill --- Taxation, Subsidies, and Revenue: General --- Financial Crises --- Financial services law & regulation --- Public finance & taxation --- Economic & financial crises & disasters --- Capital adequacy requirements --- Tax incentives --- Countercyclical capital buffers --- Financial crises --- Financial regulation and supervision --- Bank regulation --- Asset requirements --- United States