Bank Bailouts, International Linkages, and Cooperation

Friederike Niepmann and Tim Schmidt-Eisenlohr

American Economic Journal: Economic Policy, 2013, vol. 5, issue 4, 270-305

Abstract: Financial institutions are increasingly linked internationally. As a result, financial crises and government intervention have stronger effects beyond borders. We provide a model of international contagion allowing for bank bailouts. While a social planner trades off tax distortions, liquidation losses, and intra- and intercountry income inequality, in the noncooperative game between governments there are inefficiencies due to externalities, a lack of burden sharing, and free riding. We show that, in absence of cooperation, stronger interbank linkages make government interests diverge, whereas cross-border asset holdings tend to align them. We analyze different forms of cooperation and their effects on global and national welfare.

JEL-codes: C72 G01 G21 G28 (search for similar items in EconPapers)
Date: 2013
Note: DOI: 10.1257/pol.5.4.270
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Citations: View citations in EconPapers (37)

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Related works:
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)
Working Paper: Bank Bail-Outs, International Linkages and Cooperation (2010)
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