Niepmann, Friederike and Schmidt-Eisenlohr, Tim (2010) Bank Bailouts, International Linkages and Cooperation. Oxford University Centre for Business Taxation WP 10/16.
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 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.
|Item Type:||Other Working Paper|
|Keywords:||bailout, contagion, nancial crisis, international institutional arrangements|
|Centre:||Oxford University Centre for Business Taxation > CBT Working Papers|
|Date Deposited:||21 Jan 2011 15:27|
|Last Modified:||15 Oct 2015 02:18|
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