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optimal resolution mechanism

In this section, we compare MPOE and SPOE resolution in a benchmark setting in which the resolution is carried out by a benevolent supranational regulator. This benevolent supranational regulator chooses the resolution regime that maximizes the ex ante expected value of the global bank (equivalent to ex ante surplus) and can commit to implement the required ex post transfers across jurisdictions under SPOE resolution. SPOE resolution has two main advantages. First, the ability to make transfers across subsidiaries in different jurisdictions generates coinsurance benefits, which translate into lower required TLAC for the global bank. This, in turn, increases the bank’s capacity to provide banking services through short-term debt issuance. Second, under SPOE resolution, the two subsidiaries continue to operate as part of the same global bank even after a resolution, allowing the global bank to fully capture economies of scale and scope from shared services.