The paper presents a framework for quantifying the possible impact of a sudden failure of a bank on the real economy. Focusing on the consequences of a temporary credit shortage affecting the borrowers of an ailing bank, our methodology entails two steps: i) estimating the potential credit shortfall due to a bank's liquidation; ii) estimating the impact of such a shortfall on real economy variables (GDP, value added, and employment).
The paper concludes that it is possible to construct a framework quantifying the impacts of a sudden liquidation of a bank on the real economy by leveraging on harmonized data sources at Banking Union level. The methodology is applicable to banks of heterogeneous size and significance. In particular, for medium-sized ('grey area') banks, the outcome of the quantitative analysis provides useful elements to reduce the uncertainty about the financial stability risks stemming from their liquidation.
