Bank Bail-Outs, International Linkages and Cooperation

Friederike Niepmann and Tim Schmidt-Eisenlohr

No ECO2010/05, Economics Working Papers from European University Institute

Abstract: Financial institutions are increasingly linked internationally and engaged in cross-border operations. As a result, financial crises and potential bail-outs by governments have important international implications. Extending Allen and Gale (2000) we provide a model of international contagion allowing for bank bail-outs financed by distortionary taxes. In the sequential game between governments, there are inefficiencies due to spillovers, free-riding and limited burden-sharing. When countries are of equal size, an increase in cross-border deposit holdings improves, in general, the non-cooperative outcome. For efficient crisis managment, ex-ante fiscal burden sharing is essential as ex-post contracts between governments do not achieve the same global welfare.

Keywords: bail-out; contagion; financial crisis; international institutional arrangements (search for similar items in EconPapers)
JEL-codes: F36 F42 G01 G28 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-ban
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Bank Bailouts, International Linkages, and Cooperation (2013)
Working Paper: Bank Bailouts, International Linkages and Cooperation (2011)
Working Paper: Bank Bailouts, International Linkages and Cooperation (2011)
Working Paper: Bank Bailouts, International Linkages and Cooperation (2010)
Working Paper: Bank Bailouts, International Linkages and Cooperation (2010)
Working Paper: Bank bailouts, international linkages and cooperation (2010)
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