Bank Bailouts, International Linkages and Cooperation

Niepmann, Friederike and Schmidt-Eisenlohr, Tim (2010) Bank Bailouts, International Linkages and Cooperation. Oxford University Centre for Business Taxation WP 10/16.

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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 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
URI: http://eureka.sbs.ox.ac.uk/id/eprint/588

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