Bank forbearance: A market-based explanation

Carolin D. Schellhorn, Lewis J. Spellman

    Research output: Contribution to journalArticle

    • 1 Citations

    Abstract

    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. Jel Classification: G180; G200; G210; G280

    LanguageEnglish (US)
    Pages451-466
    Number of pages16
    JournalQuarterly Review of Economics and Finance
    Volume40
    Issue number4
    StatePublished - Dec 1 2000

    Fingerprint

    Forbearance
    Reversal
    Damage
    Postponement
    JEL classification
    Pricing
    Common law
    Stockholders
    Investors
    Solvency
    Accountants

    Keywords

    • Bank regulation
    • Forbearance
    • Market discipline
    • Subordinate debt

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

    Cite this

    Schellhorn, C. D., & Spellman, L. J. (2000). Bank forbearance: A market-based explanation. Quarterly Review of Economics and Finance, 40(4), 451-466.

    Bank forbearance : A market-based explanation. / Schellhorn, Carolin D.; Spellman, Lewis J.

    In: Quarterly Review of Economics and Finance, Vol. 40, No. 4, 01.12.2000, p. 451-466.

    Research output: Contribution to journalArticle

    Schellhorn, CD & Spellman, LJ 2000, 'Bank forbearance: A market-based explanation' Quarterly Review of Economics and Finance, vol. 40, no. 4, pp. 451-466.
    Schellhorn CD, Spellman LJ. Bank forbearance: A market-based explanation. Quarterly Review of Economics and Finance. 2000 Dec 1;40(4):451-466.
    Schellhorn, Carolin D. ; Spellman, Lewis J./ Bank forbearance : A market-based explanation. In: Quarterly Review of Economics and Finance. 2000 ; Vol. 40, No. 4. pp. 451-466
    @article{cf3ed81d495043cf8d66d73cad6bb9e1,
    title = "Bank forbearance: A market-based explanation",
    abstract = "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. Jel Classification: G180; G200; G210; G280",
    keywords = "Bank regulation, Forbearance, Market discipline, Subordinate debt",
    author = "Schellhorn, {Carolin D.} and Spellman, {Lewis J.}",
    year = "2000",
    month = "12",
    day = "1",
    language = "English (US)",
    volume = "40",
    pages = "451--466",
    journal = "Quarterly Review of Economics and Finance",
    issn = "1062-9769",
    publisher = "Elsevier",
    number = "4",

    }

    TY - JOUR

    T1 - Bank forbearance

    T2 - Quarterly Review of Economics and Finance

    AU - Schellhorn,Carolin D.

    AU - Spellman,Lewis J.

    PY - 2000/12/1

    Y1 - 2000/12/1

    N2 - 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. Jel Classification: G180; G200; G210; G280

    AB - 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. Jel Classification: G180; G200; G210; G280

    KW - Bank regulation

    KW - Forbearance

    KW - Market discipline

    KW - Subordinate debt

    UR - http://www.scopus.com/inward/record.url?scp=0042687997&partnerID=8YFLogxK

    UR - http://www.scopus.com/inward/citedby.url?scp=0042687997&partnerID=8YFLogxK

    M3 - Article

    VL - 40

    SP - 451

    EP - 466

    JO - Quarterly Review of Economics and Finance

    JF - Quarterly Review of Economics and Finance

    SN - 1062-9769

    IS - 4

    ER -