Bank resolution and public backstop in an asymmetric banking union

Anatoli Segura and Sergio Vicente (sergio.vicente@qmul.ac.uk)
Additional contact information
Sergio Vicente: Queen Mary University of London

No 1212, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: This paper characterizes the optimal banking union with endogenous participation in a two-country economy in which domestic bank failures may be contemporaneous to sovereign crises, giving rise to risk-sharing motives to mutualize bail-out funding. Raising public funds to conduct bail-outs entails a deadweight loss. Bank bail-ins create disruption costs. The optimal resolution trades-off these costs. Truthfully eliciting information from domestic authorities imposes a domestic co-payment to fund bail-outs. When country asymmetry is large, ensuring the ex-ante participation of the fiscally stronger country requires a reduced contribution by this country, which increases the likelihood of bailing out its failing bank.

Keywords: banking union; bail-in; bail-out; public backstop; mechanism design (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2019-03
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.bancaditalia.it/pubblicazioni/temi-disc ... 212/en_tema_1212.pdf (application/pdf)

Related works:
Working Paper: Bank resolution and public backstop in an asymmetric banking union (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_1212_19

Access Statistics for this paper

More papers in Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area Contact information at EDIRC.
Bibliographic data for series maintained by (emanuela.battistini@bancaditalia.it).