HEC Paris

About: HEC Paris is a education organization based out in Jouy-en-Josas, France. It is known for research contribution in the topics: Investment (macroeconomics) & Market liquidity. The organization has 584 authors who have published 2756 publications receiving 104467 citations. The organization is also known as: Ecole des Hautes Etudes Commerciales & HEC School of Management Paris.

Financial Restructuring and Resolution of Banks

Abstract: How do resolution frameworks affect the private restructuring of distressed banks? We model a distressed bank’s shareholders and creditors negotiating a restructuring given asymmetric information about asset quality and externalities onto the government. This yields negotiation delays used to signal asset quality. We find that strict bail-in rules increase delays by worsening informational frictions and reducing bargaining surplus. We characterize optimal bail-in rules for the government. We then consider the government’s possible involvement in negotiations. We find this can lead to shorter or longer delays. Notably, the government may gin from committing not to partake in negotiations.

Pitfalls in Systemic-Risk Scoring

Abstract: Regulatory data used to identify Systemically Important Financial Institutions (SIFIs) have gradually become public since 2014. Exploiting this transparency shock, we show that the scoring methodology implemented by the Basel Committee on Banking Supervision is biased and can create wrong incentives for regulated banks. Using regulatory data for 106 US and international banks, we show that the economic magnitude of the bias turns out to be important as the regulatory capital of some banks is reduced by more than EUR 20 billion or 16% of their Tier 1 capital. The banks that benefit the most from the bias are US global and custodian banks. We then propose a modified methodology that corrects for the bias.