تحمل بانک: توضیح مبتنی بر بازار

Why does forbearance for insolvent banks occur? We offer an explanation based on stockholders’ ability to appeal to the courts for reversal and monetary damages after the regulator has initiated a receivership action. Although this has always been theoretically possible, precedents and common law standards now exist. We calculate the market’s perceived postponement of receiverships for banks thought to be insolvent. We explain the receivership delays with the regulator’s reluctance to proceed when investors’ pricing of the bank’s stock and accountants’ assessment of the bank’s solvency do not support a receivership action. Our clinical evidence is consistent with this notion.

Receivership delays, known as forbearance, for financial institutions thought to be insolvent are not uncommon. This raises the question of why forbearance occurs. Explanations provided in the literature are based on an incentive breakdown that causes the regulator to protect and defend the regulated Kane 1989, Kane 1990 and Boot and Thakor 1993. We advance an alternative explanation: regulators may be deterred by the threat of a shareholder appeal to the courts to reverse the receivership and assess monetary damages against the regulator. 1 We provide clinical evidence consistent with this notion.

The tendency of regulators to provide forbearance for troubled banks is well documented. The question is why forbearance occurs. We suggest that regulators may delay receiverships for banks they believe are insolvent when the banks’ stockholders have evidence that supports a reversal of the receivership decision with possible damages. Although legal redress in a receivership action has always been possible, there is now precedent. In court, the regulator has been called upon to show “sufficient data” that the insolvency existed “at the time” the receivership commenced. This is a difficult task for the regulator on an asset-by-asset basis as secondary markets for most bank loans do not exist, and accountants tend to recognize loan losses with a lag. Further, if the bank’s stock is publicly traded and stock prices appear to indicate solvency, the stockholders would likely use this information as evidence that the receivership decision was not justified, even if the stock price merely reflected the option value of an extended time until receivership.