A game theory approach to optimizing the banking and financial resolution framework
A game theory approach to optimizing the banking and financial resolution framework

Summary/Abstract: Before the 2007-2008 financial crisis, credit institutions were assured (though not officiallyor formally) that if they were large enough they would be rescued with tax-payers’ money,an action also known as bail-out, denoting what became known as the “too big to fail”paradigm. The introduction of the Bank Recovery and Resolution Directive (2014/59/EU)proposes a legal framework that aims at eliminating the possibility of bailing-out institutions.This paper has the objective of assessing through a game theory approach to what extent theBRR Directive has the potential to achieve its purpose and if there are identifiable possibleimprovements to this framework that could be considered for practical purposes or for apossible future review of the legal framework. The term institution, for the purpose of thispaper, refers to credit institutions but can also be read as referring to other types of financialinstitutions such as investment firms or insurance companies.

• Details
• Contents