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Sustainability as banks’ new priority

Despite the ongoing policy debate (see, in particular,almost no formal economic analysis of the trade-offs between MPOE and SPOE resolution exists. One exception is who analyze how the losses that regulators impose on domestic and foreign bondholders under MPOE and SPOE resolution depend on a bank’s mix of domestic and foreign assets and liabilities. Another exception is who provides a quantitative analysis of the loss of diversification and greater risk of failure, for the same amount of aggregate capital, that results from the elimination of a flexible central capital reserve under MPOE resolution. Several related papers investigate other aspects of bank resolution: compare resolution under Dodd-Frank with the alternative of restructuring a failed G-SIB through bankruptcy; discusses the resolution of failing central counterparties, which, like G-SIBs, are likely to be too big to fail;  provide a model of bank resolution in which regulators may be too soft during a resolution, for fear of spooking market participants; and analyze how incentives for national regulators to intervene depend on foreign asset holdings and equity ownership of the bank in question. ) study how bank resolution affects banks’ incentives to privately restructure outside of resolution, whereasanalyze the design of a public backstop in a banking union. The cross-jurisdictional focus of our analysis relates to the literature on transnational bankruptcy for nonfinancial institutions. In particular, consistent with our analysis,  argue that the territoriality rule in bankruptcy law is inefficient and dominated by the universalism rule. Nevertheless, political economy considerations often lead national bankruptcy courts to inefficiently implement national bankruptcy proceedings.