Bank Bailouts, International Linkages and Cooperation

Friederike Niepmann and Tim Schmidt-Eisenlohr

No 1016, Working Papers from Oxford University Centre for Business Taxation

Abstract: Financial institutions are increasingly linked internationally. As a result, financial crisis 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 inter-country income inequality, in the non-cooperative game between governments there are inefficiencies due to externalities, no 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.

Keywords: bailout; 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
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Citations: View citations in EconPapers (1)

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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 Bail-Outs, International Linkages and Cooperation (2010)
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