Common Deposit Insurance, Cross-Border Banks and Welfare

Gyöngyi Lóránth (), Anatoli Segura () and Jing Zeng ()
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Gyöngyi Lóránth: University of Vienna & CEPR
Anatoli Segura: Banca d’Italia & CEPR
Jing Zeng: University of Bonn & CEPR

No 422, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: We study the effects of aligning the incentives of national authorities through the common provision of deposit insurance in a model of cross-border banks with both endogenous risk-taking and within-group risk-sharing. Under national deposit insurance, local authorities inefficiently ring-fence resources owing from healthy to impaired subsidiaries. A single authority responsible for a common deposit insurance fund does not ring-fence. This encourages cross-border integration, but has an ambiguous impact on banks' risk-taking. Overall, common deposit insurance increases welfare when the fundamental risk in the economy is high but otherwise can lead to excessive cross-border integration and lower welfare.

Keywords: Cross-border bank; common deposit insurance; intragroup support; ring-fencing; banking union (search for similar items in EconPapers)
JEL-codes: D8 G11 G2 (search for similar items in EconPapers)
Pages: 86 pages
Date: 2026-07
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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:422

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