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Working Paper

Underlying Determinants of Closed-Bank Resolution Costs

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This paper looks at the underlying determinants of bank resolution costs. In the spirit of James (1991), resolution costs are modeled as functions of problem assets. However, we extend previous work by looking at more recent failures (from 1986 through 1992) and by extending our specification to include proxies for fraud, off-balance-sheet risk, brokered deposits, and both regional and size effects. Unlike James, we find no evidence that capital reflects net unbooked losses. On the other hand, we find roles for fraud, off-balance-sheet items, and both regional and size dummies. We also find evidence suggesting that regulators may have practiced forbearance.
03.01.1994ISSN 2573-7953 WP 94-03DOI 10.26509/frbc-wp-199403

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Osterberg, William P., and James B. Thomson. 1994. “Underlying Determinants of Closed-Bank Resolution Costs.” Federal Reserve Bank of Cleveland, Working Paper No. 94-03. https://doi.org/10.26509/frbc-wp-199403