Professor Emilios Avgouleas was invited to speak at the biannual conference of the Basel Committee on Banking regulation (the standard setter for the global banking industry), which took place at the Bank of International Settlements on 22nd to 23rd January 2015.
Professor Avgouleas was asked to present his paper 'Critical Reflections on Bank Bail-ins', jointly authored with Charles Goodhart, Professor Emeritus Norman Sosnow, London School of Economics.
The conference steering committee included leading economists from Princeton and Columbia universities as well as the deputy governor of the Bank of Belgium. Its aim was to discuss the next frontier in Banking Regulation and take stock of post-2010 developments. It was attended by a small group of specially invited senior US and European regulators, central bankers, and bank directors.
Professor Avgouleas’s paper was selected in a competitive process alongside a handful of other papers from more than 100 high quality submissions. An earlier version had been selected and presented at the annual conference of the Chicago Federal Reserve in November 2014.
About the paper
The paper touches on a very important question about the viability of modern banking. Under the new bail-in regimes in the USA (Tittle II of the Dodd Frank Act) and in the EU under the Bank Recovery and Resolution Directive 2014, the claims of bank creditors are either written down or converted to equity to provide funds to recapitalise a failing/failed bank, ruling out publicly funded bailouts. It is hailed as an effective solution to the previously intractable problem of the too-big-too-fail institution that was at the heart of the 2008 global crisis.The authors provide critical insights about the advantages and limitations of the bail-in tool. They conclude that use of bail-in may be the appropriate resolution tool when a smaller domestic bank fails or when a bigger bank fails for idiosyncratic reasons, such as fraud. The authors however dispute the claim that bail-in centred resolution can be used in the context of failure of a big global bank or in the event of systemic crisis, arguing that in such a case contagion and creditor flight may prove uncontainable.
The programme of the conference and papers as well as presentations may be accessed here.
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