Autori
SCHMIDT-EISENLOHR, Tim
NIEPMANN, Friederike

Titolo
Bank Bail-Outs, International Linkages and Cooperation
Periodico
European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 2010 - Fascicolo: 5 - Pagina iniziale: 1 - Pagina finale: 61

Financial institutions are increasingly linked internationally and engaged in cross-border operations. As a result, financial crises and potential bail-outs by governments have important international implications. Extending Allen and Gale (2000) we provide a model of international contagion allowing for bank bail-outs financed by distortionary taxes. In the sequential game between governments, there are inefficiencies due to spillovers, free-riding and limited burden-sharing. When countries are of equal size, an increase in cross-border deposit holdings improves, in general, the non-cooperative outcome. For efficient crisis managment, ex-ante fiscal burden sharing is essential as ex-post contracts between governments do not achieve the same global welfare.




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