The treatment of distressed banks.

Abstract

This article suggests some reforms of regulatory architecture for the treatment of distressed banks. Our main recommendations are: • a special bankruptcy regime for banks should be implemented ; • strong, truly independent supervisory agencies should be established ; • the incentives of the top managers of distressed banks should not be kept unchecked ; • procyclicality of solvency regulations should be dampened by the introduction of “automatic stabilisers” ; • one should move toward centralised supervision in economic areas which are meant to be integrated.