Regulatory forbearance in stress testing, CoCo conversion and bank resolution

FRI-UniAmsterdam

We aim for a small workshop with high-quality theoretical and empirical papers on the theme of regulatory forbearance.

Stress tests are used to enforce capital requirements under skewed risk scenarios. Their effectiveness depends on timely recapitalisation, a process hindered by limited information and moral hazard. As shareholders of highly leveraged banks are reluctant to recapitalise, regulators need to intervene vigorously as needed, activating going-concern CoCo conversion or initiating resolution, a controlled form of bankruptcy.

Regulatory forbearance arises when policymakers gamble with bank solvency out of concerns for market stability, short-term reputation or fiscal costs. It may take forms such as a delay in debt conversion or a weak stress test methodology.

In general, a weaker intervention capacity affects the private incentives to recapitalise and enables private risk taking, leading to larger fiscal costs.

Funding
Accommodation expenses will be covered for participants in the programme. Participants are encouraged to fund their travel expenses from other sources as only limited funding is available. Where financial support is offered, this will be in accordance with CEPR's travel expenses guidelines.

How to apply
To respond, please visit: https://portal.cepr.org/regulatory-forbearance-workshop and indicate whether or not you wish to present a paper or would be willing to act as a discussant. The deadline for replies is 6 p.m. (GMT), Thursday 1 March 2018. If you have any difficulties registering for this meeting, please contact Amanda Vincent-Rous, CEPR Events team at avincentrous@cepr.org for assistance (with subject header "5700 – Regulatory Forbearance").

Scientific committee
Franklin Allen (Imperial College London and CEPR), Charlie Calomiris (Columbia University), Elena Carletti (Bocconi University and CEPR), Paul Glasserman (Columbia University), Martin Oehmke (Columbia University), Rafael Repullo (CEMFI and CEPR), and Tano Santos (Columbia University and CEPR)

Organisers
Roger Laeven (University of Amsterdam)
Enrico Perotti (University of Amsterdam and CEPR)
Sweder van Wijnbergen (University of Amsterdam and CEPR)