Supervisory lessons: resolution is a ‘dirty business’
Aristóbulo de Juan offers a toolkit for resolving problem banks
Bank resolution is a difficult process. In most cases, identifying losses is a gradual process, which takes time.
Therefore, even if an institution is not illiquid, decapitalisation needs to be addressed as soon as capital is seriously eroded, because insolvency is already present in most cases. As with relying on time, depending on growth as a solution can prove a costly mistake. As a rule, underlying and hidden losses will grow faster. Even better management will find it hard to keep up.
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