Banking

Recovery Determinants Of Distressed Banks: Regulators, Market Discipline, Or The Environment?

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Executive Summary

Based on detailed regulatory intervention data among German banks during 1994 - 2008, the author tests if supervisory measures affect the likelihood and the timing of bank recovery. Severe regulatory measures increase both the likelihood of recovery and its duration while weak measures are insignificant. With the benefit of hindsight, the author excludes banks that eventually exit the market due to restructuring mergers. The results remain intact, thus providing no evidence of "Bad" bank selection for intervention purposes on the side of regulators.

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