Excerpt
Excerpt
Rules Versus Discretion in Bank Resolution. Lucy White, June 12, 2015, Paper. "We analyze the problem of a bank regulator who has the power to ‘bail in’ the debt of troubled banks, as is implied by newly designed bank resolution regimes. Allowing regulators to use their discretion in resolving banks permits them to act on the basis of their more precise, private information. However, regulators with discretion end up being excessively weak in order to avoid revealing adverse information and triggering bank runs. Optimally designed resolution regimes involve discretion whenever public news is favorable, but tie the regulator’s hands with rules after bad news..." Link