Bank Recovery and Resolution Planning, Liquidity Management and Fragility

We study how regulation shapes the interaction between financial fragility and bank liquidity management and propose a rationale for the complementarity between bank recovery and resolution planning. To this end, we analyze an economy in which a benevolent resolution authority sets a bank resolution plan to suspend deposit withdrawals and create a ``good bank'' at a cost in the event of a depositors' run. In such a framework, banks maximize expected welfare if deciding ex-ante how to manage liquidity during runs. However, this choice is time inconsistent. Therefore, regulators need to force banks to commit to it through recovery planning