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Optimal design of bank bailouts: the case of transition economies
In most recent banking crises bank regulators have been caught off their guard
and have been forced to respond to the crisis in a hurry without the support
of an institutional or legal framework designed to deal with bank failures.
This is in sharp contrast with the non-financial sector, where a detailed and
elaborate bankruptcy law governs the process of liquidation or reorganisation
of financially distressed firms. In this paper we address the question of how
to design a bankruptcy institution for banks that would serve a similar
purpose as existing bankruptcy laws for non-financial firms.
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