From the Rescue of Banks to the Single Resolution Mechanism: Institutional and Empirical Analysis

Abstract

The analysis of the new system of bank resolution shows the extreme complexity of the mechanism and the variety and impact of the tools available. The BRRD organises the articulation of public tasks for banking crises in three different phases: the ordinary course of business, the early intervention, and finally the situation of banks in distress or at risk of collapse; in the last one there are the conditions for resolution. The most stricking point appeared the bail-in, that has transferred the crisis risk from taxpayers to investors and savers. In fact, the dismantling of the national protection network was not, in the meantime, balanced by the introduction of the planned European protection. In the present analysis we focus on the resolution capacity of Italian banks and examine the implications of the new bail-in tool for banks’ activity and business strategies. According to our findings lending-oriented banks feature a relatively lower bail-in contribution capacity. Moreover, resolution capacity increases with size, while income diversification is found neutral. On aggregate values, we find a contraction of resolution capacity of Italian banking system in recent years, similarly to what found for the European banking system (see Ayadi and de Groen, 2015). Overall our results suggest that the new bail-in rules may imply a reassessment of the traditional retail business model towards greater income diversification, with the risk of penalising small businesses which are still the backbone of the Italian economy. As regards policy implications, our findings support, as the main option, the strategy of aggregations for strengthening the resolution capacity of the Italian banking system.