Bank bailouts, international linkages and cooperation

Friederike Niepmann and Tim Schmidt-Eisenlohr

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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 intercountry income inequality, in the noncooperative 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: portfolio choice; international transmission of shocks; monetary policy (search for similar items in EconPapers)
JEL-codes: F36 F42 G28 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2010-11-01
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http://eprints.lse.ac.uk/121902/ Open access version. (application/pdf)

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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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:121902

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