Losses may accrue to depositors at insolvent banks both at and after the time of official resolution. Losses at resolution occur because of poor closure rules and regulatory forbearance. Losses after resolution occur if depositors' access to their claims is delayed or "frozen." While the sources and implications of losses at resolution have been analyzed previously, the sources and implications of losses after resolution have received little attention. This paper examines the causes of delayed depositors' access to their funds at resolved banks, describes how the FDIC provides immediate access, reports on a special survey of access practices in other countries, and analyzes the costs and benefits of delayed access in terms of both the effects on market discipline and depositor pressure to protect all deposits.
IX. The FDIC Survey of Depositor Access Practices Across Countries
X. Summary and Best Practices Recommendation Conclusions
1. Funds Availability of Insured Deposits
2. Funds Availability of Uninsured Deposits
1. Additional Market Discipline and BailoutPressure
they are received and monitoring and enforcing their compliance with this policy.
V. P rocedures F or I mmediate and F ull P ayment of D epositor C laims at R esolution
If losses are incurred in resolving an insolvency, governments, out of fear of depositor bailoutpressure or of systemic risk, may prefer to provide depositors with immediate and full access to their claims at the time of resolution when the institution is legally declared insolvent and placed in receivership. The government or deposit insurance agency can do so by advancing funds to
Ary Lars Bovenberg, Jeroen J. M. Kremers, and Mr. Paul R Masson
form of either higher taxes or a higher risk premium on their public debt. 13 In essence, bailoutpressures would make the debt instruments issued by various EMU governments closer substitutes to the extent that increased borrowing by any one government would raise the risk premium paid by the other EMU members.
The effect of increased public borrowing on the probability of a budgetary bailout constitutes an argument in principle for either a tax on public borrowing or the subjection of budgetary policies to strict surveillance by the other member countries (as
mutual interdependence among member countries. This makes it more difficult to resist bailing out a member country facing financial problems. Hence, a no-bailout clause would not be fully credible, in part because resource transfers through the structural funds or other indirect channels would effectively amount to a bailout. 13 Thus, the costs of undisciplined budgetary policies would be shifted to other EMU countries in the form of either higher taxes or a higher risk premium on their public debt. 14 In essence, bailoutpressures would make the debt instruments
the solidarity and mutual interdependencies among member countries. This makes it more difficult to resist bailing out a member country facing financial problems. Hence, a no-bailout clause would not be fully credible, in part because resource transfers through the structural funds or other indirect channels would effectively amount to a bailout. 1/ Thus, the costs of undisciplined budgetary policies would be shifted to other EMU countries in the form of either higher taxes or a higher risk premium on their public debt. 1/ In essence, bailoutpressures would
This paper reviews the pros and cons of institutionalized constraints limiting the freedom of national budgetary policies within an Economic and Monetary Union (EMU) in Europe. The issue is approached from three angles: the influence of EMU on (i) budget discipline; (ii) intergenerational equity and intertemporal efficiency; and (iii) macroeconomic stabilization. The desirability of constraints on budgetary policy is related to the arrangements for EMU-wide monetary policy, the credibility of a no-bailout clause among member states, and progress in the area of supply-side policies.
The CMEA countries are starting to conduct their trade at world prices and in convertible currencies. These are crucial steps in economic reform but will worsen Eastern Europe’s terms of trade and drive it into current account deficit with the U.S.S.R. Proposals have been made for a payments union, resembling the European Payments Union of 1950–58, to ease the transition. Such an arrangement would not function well if it included the U.S.S.R., which would be a persistent creditor. Other ways must be found to deal with the transition.