Working Paper Series
Understanding the Components of
Bank Failure Resolution Costs
Published in Financial Markets, Institutions and Instruments 24, (2015): 349-389.
Rosalind L. Bennett
Federal Deposit Insurance Corporation
Haluk Unal
R.H. Smith School of Business,
University of Maryland
and FDIC Center for Financial Research
FDIC CFR WP 2014-04
fdic.gov/cfr
NOTE: Staff working papers are preliminary materials circulated to stimulate discussion and critical
comment. The analysis, conclusions, and opinions set forth here are those of the author(s) alone and do
not necessarily reflect the views of the Federal Deposit Insurance Corporation. References in publications
to this paper (other than acknowledgment) should be cleared with the author(s) to protect the tentative
character of these papers.
Understanding the Components of
Bank Failure Resolution Costs
Published in Financial Markets, Institutions and Instruments 24, (2015): 349-389.
Rosalind L. Bennett
Federal Deposit Insurance Corporation
Haluk Unal
R.H. Smith School of Business,
University of Maryland
and FDIC Center for Financial Research
FDIC CFR WP 2014-04
fdic.gov/cfr
NOTE: Staff working papers are preliminary materials circulated to stimulate discussion and critical
comment. The analysis, conclusions, and opinions set forth here are those of the author(s) alone and do
not necessarily reflect the views of the Federal Deposit Insurance Corporation. References in publications
to this paper (other than acknowledgment) should be cleared with the author(s) to protect the tentative
character of these papers.
1
Understanding the Components of
Bank Failure Resolution Costs1
Rosalind L. Bennett
FDIC Division of Insurance and Research
Haluk Unal
Smith School of Business, University of Maryland and FDIC CFR
July 2014
ABSTRACT
In this paper, we demonstrate how the resolution costs associated with over 1,000 bank
failures from 1986 to 2007 are distributed across the method of resolution, bank size,
regulatory periods, and the existence of fraud. In addition, we document the time spent in
the resolution by the resolution method and legislative period. Finally, we show how
various classes of claimants against the failed banks bear the costs of the failure.
JEL Classifications: G21, G28, G33
Keywords: bank failures, bank resolution costs, FDIC receivership, fire sales, banking
crises
Opinions expressed in this paper are those of authors’
and not necessarily those of the FDIC.
1 We are grateful to Art Murton for his guidance and extensive input throughout this project. We also thank
Karen Flynn for letting us share her expertise on the FDIC accounting system, Lynn Shibut and Jack
Reidhill for answering many questions, Philip Shively for his contribution in early stages of the project, and
Abhinav Kapur for his research assistance. Naturally, we assume responsibility for all the errors.
Understanding the Components of
Bank Failure Resolution Costs1
Rosalind L. Bennett
FDIC Division of Insurance and Research
Haluk Unal
Smith School of Business, University of Maryland and FDIC CFR
July 2014
ABSTRACT
In this paper, we demonstrate how the resolution costs associated with over 1,000 bank
failures from 1986 to 2007 are distributed across the method of resolution, bank size,
regulatory periods, and the existence of fraud. In addition, we document the time spent in
the resolution by the resolution method and legislative period. Finally, we show how
various classes of claimants against the failed banks bear the costs of the failure.
JEL Classifications: G21, G28, G33
Keywords: bank failures, bank resolution costs, FDIC receivership, fire sales, banking
crises
Opinions expressed in this paper are those of authors’
and not necessarily those of the FDIC.
1 We are grateful to Art Murton for his guidance and extensive input throughout this project. We also thank
Karen Flynn for letting us share her expertise on the FDIC accounting system, Lynn Shibut and Jack
Reidhill for answering many questions, Philip Shively for his contribution in early stages of the project, and
Abhinav Kapur for his research assistance. Naturally, we assume responsibility for all the errors.