Regulatory and bailout decisions in a banking union

Andreas Haufler

Journal of Banking & Finance, 2021, vol. 133, issue C

Abstract: We model a banking union of two countries whose banking sectors differ in their average probability of failure and externalities between the two countries arise from cross-border bank ownership. The two countries face (i) a regulatory (supervisory) decision of which banks are to be shut down before they can go bankrupt, and (ii) a bailout decision of who pays for banks that have failed despite regulatory oversight. Each of these choices can either be taken in a centralized or in a decentralized way. In our benchmark model the two countries always agree on a centralized regulation policy. In contrast, bailout policies are centralized only when international spillovers from cross-border bank ownership are strong, and banking sectors are highly profitable.

Keywords: Banking union; Bank regulation; Bailout policies (search for similar items in EconPapers)
JEL-codes: F33 G28 H87 (search for similar items in EconPapers)
Date: 2021
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Related works:
Working Paper: Regulatory and Bailout Decisions in a Banking Union (2021)
Working Paper: Regulatory and Bailout Decisions in a Banking Union (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:133:y:2021:i:c:s0378426621002521

DOI: 10.1016/j.jbankfin.2021.106300

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