Optimal Design of Bank Bailouts: The Case of Transition Economies

Abstract

Abstract In most recent banking crises bank regulators have been caught off their guard and have been forced to respond to the crisis in a hurry without the support of an institutional or legal framework designed to deal with bank failures. Unfortunately most bank regulations (and in particular the BIS regulations) are concerned with the exante problem of how to avoid bank failures, and few rules have been devised on how to deal with bank failures when they occur.