Transfer transactions can be a useful tool in the resolution of failed banks. Their adoption in resolution can offer advantages in comparison with other strategies. Furthermore, a transfer is a flexible resolution tool that may be combined with others.
Operationalising a failed-bank transfer requires authorities to consider several key factors at the same time. Authorities need to identify potential acquirers, define the composition of the transfer and understand the market in which the bank will be sold. The viability of the transaction critically depends on the availability of sufficient funding given the asset-liability mismatch that is typical of a failing bank. Funding needs are largely influenced by the extent to which the gap between assets and liabilities can be reduced by the failing bank’s internal resources. In addition, funding support by resolution or deposit insurance funds will often be necessary, but authorities face complex decisions.
Given these features of bank transfers and increasing interest in them as a resolution tool, this paper discusses practical aspects of failed-bank transfers and highlights key trade-offs.
JEL classification: G01, G18, G21, G33
Keywords: bail-in, bankruptcy, creditor hierarchy, deposit insurance, depositor preference, P&A